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Government launches VAT review

14th March 2018

The government has launched a "call for evidence" on the design of the VAT registration threshold, amid concerns that the current system disincentivises small business growth.

In November 2017, the £85,000 threshold at which businesses are required to register for VAT was frozen until 2020.

This decision followed a report by the Office for Tax Simplification, which said that the current VAT system could have "distortionary" effects on small businesses.

It observed a high number of businesses with a turnover just below the threshold, which could suggest they are deliberately limiting their growth to avoid a high VAT bill.

The government has opened a consultation on possible policy solutions, including proposals for a "smoothing mechanism" to introduce the tax more gradually.

Alan McLintock, chair of the indirect taxes sub-committee at the Chartered Institute of Taxation, said:

"We support strongly making the rules on VAT less complex and easier to apply, in the expectation that it should lead to less uncertainty among business, and fewer disputes with HMRC.

"I am pleased to see a range of options being put forward by the Treasury, and to see the Government thinking imaginatively about how to achieve a wider reach with their call for evidence."

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