Exclusive
VAN MAN TAX U-TURN
Philip Hammond set to ditch plans for a VAT tax raid on small firms and White Van Man in Autumn Budget
PHILIP Hammond is poised to ditch plans for a VAT tax raid on small firms and White Van Man in favour of a less radical option that would see traders phased into the sales tax regime more gradually.
Treasury insiders say he has been persuaded against a controversial Budget move to halve the VAT threshold to £43,000, which would have dragged hundreds of thousands of small firms into the burdensome VAT system.
6
Instead the Chancellor is expected to freeze it at £85,000 until 2022 - and then introduce a sliding scale system where the more they earn the more income falls into VAT.
EU rules currently bar Britain from charging a gradually higher rate of sales tax the more firms earn because it wants to move all member states towards using the same VAT regime.
But Mr Hammond will pledge to use Brexit to free Britain of these restrictions and introduce a phasing-in approach.
This will remove the cliff-edge scenario where firms are suddenly hit with a massive mountain of paperwork when they reach £85,000 annual turnover.
6
They will instead be phased in to the VAT system so firms won’t have to suddenly pay the full 20p in the pound and so it won’t deter them from breaching the £85,000 threshold.
This will overcome the current problem whereby small firms and solo traders “bunch” at the £85,000 threshold to avoid being dragged into VAT red tape.
This “bunching” phenomenon stops firms from growing, which in turn leads to lost tax receipts - costing the Treasury around £2billion a year.
Mr Hammond has been weighing up whether to get around the “bunching” problem by drastically lowering the threshold to £43,000, which would have affected half a million small firms and raised up to £1.5billion for the Treasury in extra VAT receipts.
6
But after a fierce backlash from Tory MPs and small business groups has pushed the Chancellor to scrap this idea, according to sources.
Insiders said he will use Monday’s Budget to announce a further extension to the £85,000 threshold.
The freeze is due to end in 2020 but the Chancellor will extend this to 2022. Officially both options are still on the table ahead of Monday’s Budget.
A Treasury source said the Chancellor’s decision was “pretty definite”.
6
But the Federation of Small Businesses welcomed signs that the Chancellor was poised to scrap his radical plans to halve the threshold.
FSB chief Mike Cherry said: “A wholesale expansion of the VAT regime would be devastating for the thousands of smaller businesses affected.
"VAT has more complicated paperwork than any other tax - taking on average a week of form-filling each year.
"The Chancellor should leave the current system alone until after Brexit, and then make sensible changes to smooth-out the VAT cliff-edge which acts as a barrier to business growth.”
6
Meanwhile Labour will demand the Chancellor spend a whopping £110BILLION to prove austerity is over – equal to £4,500 for every household.
In an extraordinary pre-Budget blast Labour’s John McDonnell will insist the Tories apologise for eight years of cuts by reversing all the tax cuts to rich Brits and big business since 2010.
6
In a shopping list that would plunge the country into deeper debt, Labour will call for £61billion alone to reverse cuts to Government departments and £24billion to undo social security cuts.
MOST READ IN POLITICS
Theresa May told MPs today that they would see austerity is ending in next year’s Spending Review.
Speaking during Prime Minister’s Questions, she said: “After a decade of austerity people need to know that their hard work has paid off and that, because of their sacrifices, there are better days ahead.”
Brexit deal with the EU will give economy a double bonus, Chancellor Philip Hammond vows
- GOT a story? RING The Sun on 0207 782 4104 or WHATSAPP on 07423720250 or EMAIL [email protected]
Topics