You are here: Home - Household Bills - News -

BUDGET 2017: VAT threshold remains on hold, but under review

Written by:
Chancellor Philip Hammond kept the VAT threshold on hold at £85,000, but plans to consult on whether it should change to better incentivise small business growth.

Hammond said that a recent report by the Office for Tax Simplification showed that the current limit – the highest in the OECD – distorts competition and disincentivises business growth.

The report said: “At £85,000, the UK has the highest VAT threshold in the EU, where the average is £20,000, and the highest general threshold in the OECD. The data and anecdotal evidence considered in this review clearly shows that the threshold distorts behaviour by creating a significant cliff-edge, resulting in a bunching effect just below the £85,000 turnover level, rather than the smoother pattern one would otherwise expect.

“The threshold is therefore presenting a significant disincentive to maximising the potential growth of some businesses.”

VAT is the third largest source of tax revenue collected by HMRC, after income tax and National Insurance Contributions. £120bn of VAT was collected in 2016/17, which was 22.5% of all taxes.

The VAT system is largely prescribed by European Union rules, so is unlikely to change significantly until Britain leaves the EU.

Hammond said: “Such a high threshold also has the benefit of keeping the majority of small businesses out of VAT altogether. So I am not minded to reduce the threshold. But I will consult on whether its design could better incentivise growth. And in the meantime we will maintain it at its current level of £85,000 for the next two years.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Your right to a refund if travel is affected by train strikes

There have been a wave of train strikes in the past six months, and for anyone travelling today Friday 3 Febru...

Could you save money with a social broadband tariff?

Two-thirds of low-income households are unaware they could be saving on broadband, according to Uswitch.

How to help others and donate to food banks this winter

This winter is expected to be the most challenging yet for the food bank network as soaring costs push more pe...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week