In November 2017, the £85,000 threshold at which businesses are required to register for VAT was frozen until 2020.
This decision followed a report by the Office for Tax Simplification, which said that the current VAT system could have “distortionary” effects on small businesses.
It observed a high number of businesses with a turnover just below the threshold, which could suggest they are deliberately limiting their growth to avoid a high VAT bill.
The government has opened a consultation on possible policy solutions, including proposals for a “smoothing mechanism” to introduce the tax more gradually.
Alan McLintock, chair of the indirect taxes sub-committee at the Chartered Institute of Taxation, said:
We support strongly making the rules on VAT less complex and easier to apply, in the expectation that it should lead to less uncertainty among business, and fewer disputes with HMRC.
I am pleased to see a range of options being put forward by the Treasury, and to see the Government thinking imaginatively about how to achieve a wider reach with their call for evidence.