Welcome to the February 2024 Newsletter from Walsh & Co

The Federation of Small Businesses (FSB) has urged the government to raise the turnover threshold for VAT from its current level of £85,000 to £100,000 to provide small firms with 'breathing space'.

Meanwhile, the value of tax penalties rose by 25% between 2022 and 2023, a Freedom of Information request revealed.

Raise VAT threshold to £100,000, says FSB

The government should raise the turnover threshold for VAT from £85,000 to £100,000, according to the Federation of Small Businesses (FSB).

The business group said that this would give firms stepping into the VAT-paying ring crucial breathing space. It would also be an incentive to grow their turnover without fear of having to charge customers an extra 20% overnight, the FSB added.

The FSB also suggested bringing in a smoothing mechanism to ease the transition for small firms, owner-managed companies and some of the self-employed who go just over the threshold.

At the moment, thousands of small firms keep their turnover just below the £85,000 threshold, according to the Office for Budget Responsibility (OBR).

The OBR said that hundreds of millions of pounds of potential economic activity could be lost due to this 'bunching' just below the threshold.

Tina McKenzie, FSB's Policy Chair, said: 'VAT compliance flattens small firms by stifling their growth and emptying their coffers. It's crying out for a modern makeover to match today's economic landscape.

'The flaws in our current system are glaringly obvious. We are at a breaking point – a drastic overhaul of VAT is needed.

'Raising the threshold to reflect inflation, introducing a buffer to soften the blow for those just over the limit and demystifying the rules to save small business owners from a VAT-induced headache could unlock hundreds of millions in extra economic activity.'

Value of tax penalties surged by 25% between 2022 and 2023, data shows

A Freedom of Information request has revealed that the value of tax penalties rose by 25% between 2022 and 2023.

The data also showed that HMRC issued £851 million in penalties between November 2022 and October 2023 – a significant rise from the figure of £681 million in 2021/22. The latest figure is the highest value on record for tax penalties.

Experts have warned that the increase in penalties only piles further pressure on businesses and individuals already combating high interest rates and the cost-of-living crisis.

Commenting on the matter, a spokesperson for HMRC said: 'We're committed to helping customers pay the tax they owe, on time.

'We charge penalties to encourage customers to meet their obligations, while acting as a sanction for those who don't.

'If customers are unable to pay on time, they can contact us to discuss their options.'

Businesses and individuals struggling to pay their tax can enter into a Time to Pay arrangement if their tax debts are under £30,000. Such arrangements allow taxpayers to set up a payment plan in order to pay their tax in instalments.

ESSENTIAL TAX DATES FOR FEBRUARY

2 February         
Deadline for submitting P46(Car) for employees whose car/fuel benefits changed during the quarter to 5 January 2024.

19 February
PAYE, Student loan and CIS deductions are due for the month to 5 February 2024.

QUOTE OF THE MONTH

'In terms of the direction of travel we look around the world and we note that the economies growing faster than us in North America and Asia tend to have lower taxes, and I believe fundamentally that low-tax economies are more dynamic, more competitive and generate more money for public services like the NHS.'

Chancellor Jeremy Hunt, speaking at the World Economic Forum's annual meeting.

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