Neil Warren appeals to the Chancellor not to forget the people of Blackpool, and makes four suggestions for his coming Budget to help struggling small businesses.
Just getting by
There are two facts you may not know about Blackpool: firstly, it had one of the largest percentage of votes to leave the EU in the 2016 referendum; and secondly, it is a place that I have spent many enjoyable weekends since I moved to Manchester nearly eight years ago.
I have spoken to many owners of small Blackpool businesses in that time, covering customer-facing businesses such as bars, guest houses, cafes, gift shops, hairdressers, corner shops and restaurants. There is no doubt that many small businesses in Blackpool are, to quote the words of Theresa May, “just getting by”. I think the Chancellor needs to think about Blackpool when he puts the final touches to his forthcoming Budget speech.
Making Tax Digital
In my view, the main reason for the large ‘Leave’ vote in Blackpool was because the people of the town felt left behind with the advances of the global economy. Blackpool is not London or Manchester, and the digital and online world is still a mystery to so many small business owners.
I have just read a cracking article about a guy from Barnstable in North Devon who runs a business called Discovery Music, and although he has never owned a computer or used the internet, he has managed to run a successful business for 30 years.
My first budget proposal is that the Chancellor makes MTD for VAT voluntary for any business with annual taxable sales of £250,000 or less.
VAT registration threshold
The rumour mill has suggested that the current VAT registration threshold of £85,000 could be halved. I don’t know where this rumour started, but let me reassure you – it won’t happen!
Can you imagine the chaos there would be if the MTD for VAT threshold suddenly came down to £42,500 with only five months’ notice? I don’t think a government with a 100-seat majority could get this idea through Parliament, never mind a government relying on the support of a minority party.
There is no doubt that a reduction in the VAT registration threshold would ruin thousands of businesses in Blackpool (and many other places). My expectation and hope is that the Chancellor will stay silent on the VAT threshold and keep it frozen at £85,000 until at least April 2020, as he announced last year.
A hard trading winter in Blackpool lasts for six months ie two VAT quarters. My third suggestion is that the Chancellor should increase the default surcharge turnover threshold from £150,000 to £250,000. This would give a small business two lifelines rather than one before being hit with a default surcharge for a late VAT payment (Notice 700/50, para 4.2).
If a seasonal business suffers cash flow difficulties for its December and March VAT periods and pays VAT late, it won’t be hit with a 2% surcharge for the March period.
Flat rate scheme
The reputation of the flat rate scheme (FRS) suffered a severe bruising when the new Limited Cost Trader category came into play on 1 April 2017, with a draconian rate of 16.5% for businesses who spend little on goods (Notice 733, para 4.4). But the FRS is still used by many businesses, both for the time saving benefits of reduced record keeping, and to glean a few tax savings.
Since the FRS was introduced in April 2002, the maximum turnover a business can have on joining has been set at £150,000 of expected taxable sales in the next 12 months excluding VAT. My final suggestion is that the Chancellor extends the benefits of the FRS to many other small businesses and increases the cap on turnover for joining to £250,000, ie an almost inflationary increase for the last 15 years.
I have suggested three concessions for businesses trading with annual taxable sales of £250,000 or less and no decrease in the VAT registration threshold. None of my suggestions are very radical, but radical measures and a hung parliament don’t really go together, unlike fish and chips in Blackpool – now that is a nice thought!
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.