Pre-budget kite-flying: VAT and self-employment

There’s an important Budget speech from Philip Hammond on 22 November, and I suspect the Chancellor will be looking for ways to get more money off freelancers and self-employed people.

Speculation and rumour are already finding their ways into the newspapers, sometimes sourced from semi-official briefings which are aimed at softening us up or testing the water.

On Saturday I spotted an unexpected headline on the front page of the Telegraph. Apparently the VAT threshold is  “harming the economy”.Telegraph VAT

Why would the Telegraph run a convoluted VAT article on its front page?

The headline in the online version (£) gives a clue:

“One million businesses and self-employed people could be dragged into VAT system”.

It looks like we’re being softened up for a possible change to VAT which could have a dramatic affect on a lot of people I meet on our freelance finance courses.

The options, according to the article, have come from the Office of Tax Simplification and include:

  1. Remove all business with a turnover less than £500,000 from the VAT system. (And lose the Treasury loads of money? I don’t think so.)
  2. A tiered system with smaller businesses paying VAT at on a sliding scale of lower rates. (Kind of like the existing Flat Rate Scheme, then? But linked to turnover, not trade sector?)
  3. Make all business with a turnover of £20,000 (-ish) become VAT registered. (eek!)

Putting the article on the front page rather implies that the last option is a serious possibility.

Many countries have a much lower VAT threshold than the UK’s £85,000.  Some (Malta, Spain, Sweden…) force all businesses to be VAT registered as soon as they set up.

Many self-employed freelancers will be horrified at the thought of having to charge 20% extra and deal with VAT admin.

I’ll be keeping a close eye on what Philip Hammond says on 22 November.

Posted on 06 November 2017

What do you think?