Relief over VAT threshold in Autumn Budget

Wednesday 22 November 2017

The self-employed will, like everyone else, have been watching closely to see what the Budget has brought. As ever, the announcements made by the chancellor Philip Hammond will have impacted on a wide range of issues.

Perhaps the most eagerly-awaited announcement concerned the VAT threshold for small businesses, currently set at £85,000, the highest in the OECD. Despite expectations that he would reduce this to nearer the EU average, the chancellor has frozen it for at least the next two years. 

This figure had been hotly debated, with some arguing that it is a slightly perverse tax threshold that creates a disincentive for firms to expand to the point where turnover exceeds the set figure, or can tempt them to be dishonest about their income. 

However, many had warned against a cut, among them the Association of Taxation Technicians. The co-chair of its steering group Yvette Nunn said: "We are concerned that any significant reduction in the VAT threshold would result in unwelcome costs and burdens for small businesses - as well as increasing the tax burden on households in the form of additional VAT. " 

She added that a reduction to £43,000 would affect between 400,000 and 600,000 small businesses.

Clearly, therefore, many sole traders to self-employed people running small businesses will breathe a sigh of relief - for now at least. 

Mr Hammond said of the current system: "I will consult on whether its design could better incentivise growth." This suggests it is a topic he (or his successor) may return to in 2019. 

Other details might be of interest to specific self-employed individuals. Those who run a van have been advised that a vehicle excise duty hike will not apply to them, while those retailing tobacco and alcohol will note the former will, as usual, be taxed more highly, but alcoholic drinks will not, apart from so-called white ciders. 

Self-employed people may also be interested in other measures. Those using high-tech services a lot might be pleased by the announcement of £500 million to establish 5G mobile networks and many will be cheered by the decision to peg business rates to the Consumer Prices Index measure of inflation, rather than the higher Retail Prices Index.

There was some bad news, however; Mr Hammond announced that the Office for Budget Responsibility has downgraded its forecasts for economic growth, with this set to stumble along at between 1.3 and 1.6 per cent over the next three years. 

By Victoria McDonnell

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