UK Chancellor's VAT Threshold Increase Sparks Mixed Reactions Among Tax Experts

UK Chancellor Jeremy Hunt's decision to increase the VAT threshold from £85,000 to £90,000 has drawn mixed reactions from tax experts following his budget announcement on March 6th in the House of Commons.

Michelle Dale, VAT director at UK accounting network UHY Hacker Young, expressed disappointment, stating that while the threshold raise was anticipated, it should have been more substantial to stimulate better growth among small businesses. She remarked, "Raising the threshold more aggressively would have encouraged more growth amongst small businesses."

Alison Horner, a partner at UK accountancy firm MHA, echoed similar sentiments, considering the increase to be merely inflationary and hoping for higher thresholds in the future to alleviate VAT burdens on more businesses.

Tom Minnikin, partner at UK tax firm Forbes Dawson, welcomed the threshold increase but cautioned that it doesn't fully address concerns about businesses avoiding growth to evade VAT complexities. He emphasized the need for a more comprehensive solution, especially given the freeze on the threshold since 2021. He stated, "In broad terms, businesses only become liable to charge VAT when their annual turnover exceeds the VAT threshold."

Gerry Myton, head of indirect tax at London audit and advisory firm HW Fisher, criticized the increase for merely shifting the growth barrier for small businesses and suggested alternative measures such as reducing the VAT rate and introducing point of sale pricing net of VAT to promote growth. He suggested, "Reducing the threshold and the rate of VAT to say 19% (it is currently 20%) while introducing point of sale pricing net of VAT will create a level playing field and ensure VAT rate changes are passed to consumers.”

In addition to the VAT threshold adjustment, Chancellor Hunt also announced plans to extend full expensing to leased assets when financially feasible. This tax break, introduced as a replacement for the 'super deduction' scheme in 2021, allows companies to reclaim investments in IT and machinery in the year of purchase, providing significant savings.

Liz Ritchie, head of tax and partner at international audit and accounting firm Mazars, welcomed the expansion of full expensing to include leased assets, highlighting its potential benefits for businesses and strategic investments.

Overall, while some experts view the VAT threshold increase as inadequate to stimulate growth, the extension of full expensing to leased assets has garnered positive reception, offering businesses more flexibility and support for investment initiatives.

By fLEXI tEAM