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VAT – Level the Playing Field & Increase Employment

Comment 13th July 2010

A VAT threshold of £70,000 is a real barrier to growth. Customers will not pay an extra 17.5% (soon to be 20%) if they can avoid it so many businesses stay small and many plumbers, electricians etc. never actually employ anyone even if they would like to. Instead they turn to cash jobs or turn down work. The effect is:

  • Lower employment from less business growth
  • Lower tax revenues due to 'cash' jobs
  • Lower quality service as the best cannot naturally grow their business which leaves room for lots of cowboys. Bigger business are more professional, more worried about reputation, keep better records and are more likely to pay all their tax
  • Less apprenticeships and opportunities to learn a trade with an established company

The double whammy of employment taxes (12.8% Employers NI etc.) and extra paperwork at this level of turnover on top of the VAT just reinforces the issue.

In a perfect world there would be no VAT (or taxes). As I see it the only option is to lower the threshold where any proper rather than casual business has to account for VAT. A threshold of £20,000 would be about right.

Computerised books keep track of the VAT and if you do not want to do it in house get your accountant/book keeper to deal with it in the same way they deal with bags of receipts from many businesses.

To ease the burden a staggered tax relief of a few hundred pounds in the first few years would lessen the impact on those effected. An even more simplified system could also be introduced for the smallest of businesses.

Why does this matter?

  • It's fair, creating a level playing field for all businesses
  • Allows the best businesses to grow
  • Increases employment and apprenticeships
  • Better records kept with fewer cash jobs and less tax loss
  • Extra VAT to pay down the deficit (balancing the effect of price inflation) or allowing the rate of VAT to be cut overall

It is a brave move for a brave government but would make a real difference to business.

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