Our founding Director Rachel Eden, looks at some possible changes to the VAT system that may affect smaller organisations.
The Office of Tax Simplification last week published it’s first report on VAT.
They have timed this to fit in with the planning for the Autumn budget, so it is perfectly plausible that some of their recommendations may become government policy.
The biggest recommendation they have is about the VAT registration threshold. Currently this is relatively high compared with many other countries at £85,000 (indeed one of our smaller clients told us a few months ago he was having trouble convincing European customers he was a business because he was not VAT registered). There was some press coverage about the idea of reducing the VAT registration threshold to around the £20,000-£30,000 turnover level although the recommendation in the report itself is more cautious.
A number of our clients are charities or small businesses, some above and some below the VAT threshold, so it’s worth considering the impact of more businesses needing to register.
- If you are already registered for VAT this would have little overall effect on your business. There may be some cash flow differences if you buy from businesses that are currently not VAT registered but become VAT registered and you may find that some of your competitors start to charge VAT, which will make you more competitive.
- If you are not currently registered for VAT but would now need to register you will have to ensure your processes and record keeping are up to speed, as completing a VAT return will become a legal requirement. If you sell primarily to VAT-registered organisations you’ll find that there is little impact on your attractiveness to customers, but if you sell to charities, very small businesses or consumers you will effectively be giving them a 20% price hike (or have to take a price cut yourself).
- If you are a charity you may not think you are affected but your smaller suppliers, for example tradespeople and freelancers may have to start charging you VAT and if you aren’t registered then you’ll find it increases your costs.
As ever if you are a client of our finance team do let us know if you have any concerns about VAT and if we can help: firstname.lastname@example.org