Award-winning Midlands’s accountancy firm, Salhan Accountants, is warning businesses to monitor the upcoming review of VAT in case new rules inadvertently drag them into the new digital tax regime.
Following the Spring Statement earlier this month the Government released a new consultation, which seeks to review the current VAT registration threshold.
The threshold marks the point at which companies must register for VAT, which currently sits at £85,000. However, there have long been calls to reduce this to bring it in line with other countries and to remove barriers to growth that the threshold poses to smaller businesses.
In comparison, the German VAT threshold sits at just €17,500 (approx. £15,291), while the European-wide average is around £20,000.
Dr Anjulika Salhan, Director at Salhan Accountants, said: “The UK has one of the highest VAT thresholds in the world. While this means that many start-ups don’t have to register for VAT initially, further down the line it can limit a company’s growth, as owners are reluctant to exceed the threshold thus increasing their tax bill and administration.
“If you take the current threshold, for example, this creates a significant cliff edge and if the VAT you charge exceeds the VAT you pay, you may have to pay the difference to HM Revenue & Customs (HMRC), which could significantly reduce profits for a small business.”
Dr Salhan added that VAT registration also requires businesses to submit regular quarterly VAT returns which could take away time from running and growing a small business.
“If after its review the Government decides to lower the threshold then it is going to create a lot of additional work for small business owners and may lead to many coming under the upcoming Making Tax Digital regime,” she added.
The new digital tax system will launch next year, requiring all businesses at or over the VAT threshold to submit digital VAT records every three months using HMRC approved software.
This will be followed in subsequent years by the reporting of income, capital gains and other forms of tax digitally using the same system, according to the Government’s plans.
Dr Salhan said: “Those already over the threshold are rushing to get themselves prepared for Making Tax Digital, but those underneath it are likely not to have even considered how it could affect them.
“This means that many companies may find themselves completely unprepared if a sudden drop in the threshold led to them being dragged into this regime.”
Salhan Accountants has assisted a number of businesses with the complexities of Making Tax Digital, by helping them to incorporate online accounting systems into their bookkeeping and accounting operations.
It has also launched a dedicated sister company, Salhan Connect, which offers a fixed-price digital led service to sole traders, micro-businesses and small companies.
