Pre-Budget VAT call to the Chancellor

Blackpool tower with British flag flying
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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.

Default surcharge

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.

Conclusion

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

Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.

Replies

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19th Oct 2018 13:24

Obviously, people will all have their own take on Neil's suggestions and will indeed have their own suggestions as well. And that's part of the problem: "policy makers" at HMG could never be accused of hard thinking, so all they usually want are easy answers. The Revenue will present a coherent package (usually complete bollox, mind, but at least it's a whole) whereas everybody else dribbles in with suggestions all over the place. It's hardly surprising the Revenue always seem to get their way.

And all that said (!), here's my own counter suggestions to what Neil has proposed:

MTD: completely agree that it needs to be voluntary for smaller businesses; personally I would suggest a threshold here of £1m as that is where businesses "get serious" and either have an in-house accountant / bookkeeper or can pay more for their external adviser.

Registration threshold: I too can't see this being halved. That said, it's always seemed to me that the threshold is set too high and personally wouldn't be averse to the idea of reducing it by say £5k or £10k pa until we arrive at a sensible limit (£50k anyone?).

Default surcharge: I'm not sure, personally, I would distinguish here between small and non-small businesses, the regime should apply across the board. If there is a need to distinguish, again I would use the £1m threshold per point 1 and for the same reasons.

FRS: just abolish the f***er! I get that it's simpler but, come on, neither the standard nor cash schemes are exactly rocket science. Plus the FRS really isn't going to sit well with MTD once that gets into full swing and we have to submit the underlying transactions.

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By Tornado
19th Oct 2018 13:36

"None of my suggestions are very radical"

Perhaps not radical but perfectly sensible.

The problem is that the Government do not think 'sensible'.

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By seitler
21st Oct 2018 22:40

I totally agree with your suggestions Neil. Making MTD voluntary below a limit of £250K (or higher) makes so much sense. I deal with lots of small businesses similar to the ones in Blackpool. I know Blackpool well. In fact I was there today. I sometimes think HMRC are living in cloud cuckoo land to think that small businesses can somehow submit digital figures in just over 5 months time when the vast majority know nothing about it right now

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By NH
22nd Oct 2018 11:36

What is the point in making something voluntary, that just means that no one in their right mind will volunteer, a much better suggestion would be to offer all small VAT reg businesses an incentive to get into the digital age.
I also find it very hard to believe that there are that many people in business not using computers, I mean come on, yes of course there will be a few traders who still do the books the old way and I am sure they think they are very efficient and accurate but to be perfectly honest one of the biggest issues we have found when we move clients from old systems onto more efficient book-keeping systems is that they start paying more VAT and tax, because yes, here is a shock, the books are now more accurate and more relevant!

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By Tornado
to NH
22nd Oct 2018 12:00

"What is the point in making something voluntary, that just means that no one in their right mind will volunteer"

An interesting view.

In practice, people will fall over themselves to volunteer for anything that is worthwhile and will achieve positive results.

Your view that no one in their right minds would volunteer for registering for MTD for VAT just about sums up the feeling that many people have about this project - not worthwhile and not going to achieve positive results.

Offering an incentive is not such a bad idea, but that would still be a voluntary decision.

Holding guns to our heads and telling us that we MUST operate MTD for VAT or face dire consequences is the other end of the spectrum to volunteering, and is totally unacceptable.

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23rd Oct 2018 14:17

I don't get why the article only talks about Blackpool or suggests that Blackpool should be at the back of the mind of the Chancellor.

The view that ‘Leave’ vote in Blackpool was because the people of the town felt left behind with the advances of the global economy is more reason why Blackpool should not be on the chancellor's mind. BTW I don't believe this to be the reason for leave vote, there were many other factors that led to this vote.

I personally think no matter what measures are in place, people resist change. I understand there are still hiccups in MTD but the move was bound to happen sooner or later. The way the world is moving, people have to adapt to technology if they are to prosper in today's world.

The £250k threshold suggested above would just defeat the whole purpose of MTD VAT.

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