Lowering the threshold for VAT registration would breach Labour’s manifesto, IPSE, the Self-Employed Association has warned.
IPSE says that the government is in a bind both politically and economically. Having ruled out tax rises on ‘working people’ and increases to employer National Insurance contributions (NICs), the Chancellor’s options are limited.
In these circumstances, IPSE questions whether Ms Reeves will look to reform taxes rather than raise them.
Currently, sole traders are required to register for, charge, and pay VAT once their annual turnover exceeds £90,000.
IPSE argues that this threshold can act as a ceiling on growth, as sole traders close to the limit may hesitate to expand, fearing that adding 20% VAT to their prices will push clients towards competitors.
Reports suggest that the Treasury is considering cutting the threshold to as low as £30,000.
Fred Hicks, Senior Policy and Communications Adviser at IPSE, said:
‘This would make registering for VAT unavoidable for anyone whose main source of income is from self-employment, and then some.
‘Cutting the VAT registration threshold is not the same as increasing rates of VAT – even if it ultimately ends up with more people having to charge and pay it. And if this radical reform did go ahead, this may well be how government justifies it.
‘But make no mistake – in IPSE’s eyes, it absolutely would be a breach of their commitment – and a breach of faith – to claim that dragging people into paying a new tax is not the same as putting their taxes up.’
Internet link: IPSE website
