Many more small businesses and sole traders will be required to register for and charge VAT as a result of tax freezes.
A decision not to increase the VAT threshold will result in thousands of businesses being required to record and report VAT following registration in the years ahead.
How will small businesses be affected?
It is estimated that 60,000 more small businesses will be required to register for VAT due to the freeze, as inflation will push their turnover above the current £85,000 threshold.
Barely touched upon by the Chancellor in his recent statement, the move has been called a ‘stealth tax’ meaning it applies to individuals or companies without them being notified.
The amount of VAT charged by these newly registered companies will depend on the value of the goods or services which are being sold.
VAT is paid by the end customer, not directly by the business, but higher prices can dissuade customers from buying from your business.
Not only this but you will be required to report and record VAT information and complete regular compliance administration, which you will not have been required to carry out previously.
What can businesses do?
The best way to navigate this is by ensuring your financial plan takes into consideration the need to charge VAT in future and by preparing to record and report VAT information digitally each quarter once registered.
Businesses may wish to consider voluntary registration before they reach this point and complete regular reporting to soften the impact on their business.
Once registered for VAT, either voluntarily or as a result of meeting the threshold, it is important you remain compliant as you could face penalties for having incomplete records.
To stay updated with changes, you should ensure your records are in order and check the VAT threshold which is renewed each year.
If you need advice on related matters, contact us today for advice.
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