A survey has found that 36 per cent of microbusinesses did not know the sales threshold at which they would have to start charging customers VAT and so could unintentionally be failing to pay money to Revenue & Customs.
If a company’s turnover of VAT taxable goods and services supplied within the UK is more than £82,000 they must be registered for VAT.
Office for National Statistics data suggests there are 2.17 businesses with ten or fewer employees in the UK. According to the survey findings, as many as 780,000 of these are entirely unaware of the VAT threshold and the obligations it brings to collect the sales tax and report details to the Revenue.
Jasvinder Gakhal, director of Direct Line for Business who commissioned the research, said: ‘Often entrepreneurs are so focused on growing sales and managing day-to-day business operations, they overlook reviewing their tax obligations.’
But the survey also found that among those who were aware of the threshold, nine per cent – equivalent to about 122,000 UK firms – have deliberately capped their sales growth to stay below the VAT limit. Of those that restricted sales, 27 per cent temporarily ceased trading to achieve this.
The Conservatives’ Election manifesto has stated the party is enthusiastic about lowering the tax and regulatory burden on small businesses, saying: ‘This is why the VAT threshold has risen from £68,000 to £82,000 over our last five years in Government.’
Gakhal added: ‘Managing taxation and other obligations can appear complicated. However, there is a lot of useful guidance available. The HMRC website, for example, has information to help small businesses understand what they need to pay and when.
‘We are a fantastically entrepreneurial nation, with increasing numbers of businesses being started all the time, but these companies still have tax obligations even if they are run out of a bedroom or garage.’
She said it is important that small business owners identify what products, goods and services are liable for VAT. Companies should be aware of the three VAT rates – standard, reduced and zero – and identify what they might need to charge.
Shadow Chancellor Ed Balls has claimed that the Conservatives have secret plans to raise VAT by 2p in the pound. He said earlier this month: ‘Tory governments always raise VAT and, given another chance, they will do so again.’
Image: VAT by Shutterstock