The Chancellor is set to keep the threshold at which businesses must register to pay VAT of £85,000 turnover until 2026, rather than increasing it in line with inflation. The plans mean thousands more businesses will pay the tax for the first time as their turnover increases in line with the price rise. That limit is already frozen until 2024, but Mr Hunt and Rishi Sunak, the Prime Minister, are considering extending it for another two years. Craig Beaumont, head of external affairs at the Federation of Small Businesses, said: “Freezing the cap will hit businesses badly and drive more small businesses into paying it as their costs and prices rise. “Our research shows that nearly a quarter of small businesses see the VAT cap as a barrier to growth. Maintaining the freeze would be a truly anti-growth measure for a large part of the economy, discouraging those now below the threshold from doing business. “If the Chancellor, a former businessman, is serious about encouraging depressed economic activity, he should raise the VAT threshold to £100,000 and keep the Treasury’s promise to consider gradually reducing the threshold so as not to cause such cliff edge. To simply freeze would be a rather short-sighted move.” Mr Hunt and Mr Sunak are still putting the final touches to the autumn statement, which will be issued next Thursday. They have warned they need to fill a fiscal black hole of up to £60bn, of which around £35bn will come from spending cuts and £25bn from tax rises. For example, the rates at which people start paying the different levels of income tax and national insurance are to be frozen from 2024 – raising £5 billion a year. Other taxes, such as inheritance tax, could also be affected by a similar limit freeze. Liz Truss said during the Tory leadership campaign that she would like to increase the amount above which businesses must register for VAT. However, the measure did not appear in Kwasi Kwarteng’s mini-budget. Duncan Simpson, chief economist at the TaxPayers’ Alliance, said: “Freezing limits in a time of high inflation is tantamount to tax rises. “VAT imposes a large administrative burden on businesses, especially small businesses who now face the prospect of going over the threshold and being dragged into a new tax. “Ministers must avoid crippling small businesses with these hidden tax rises.” Earlier this month it emerged that Mr Sunak was drawing up plans for years of tax rises for everyone in the country, with a finance ministry source warning: “It’s going to be rough”. The Prime Minister and Chancellor agreed that “tough decisions” would be needed on tax rises given the “staggering size” of the fiscal black hole left by the mini-Budget. The Treasury said that while those with the broadest shoulders should bear the brunt, given the scale of the challenge it was “inevitable” that everyone would need to contribute more in tax over the coming years. The source said: “It’s going to be rough. “The truth is that everyone will need to contribute more in taxation if we are to maintain public services. “After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bill support, we won’t be able to fill the fiscal black hole with spending cuts alone.”
