Why the VAT Threshold is Holding the Economy Back


As a trained accountant, I have seen first-hand the frustration of business owners who are hesitant to grow their business beyond the VAT registration threshold of £85,000 per year. The reason for this is because the moment a business surpasses this threshold, it is required to add 20% to its prices, which can be a significant financial burden for both the business and its customers. As a result, many business owners are content to remain just under the threshold, even though it prevents them from growing and creating more jobs.

One of the most significant challenges with the UK’s tax system is that it penalizes business owners for wanting to expand their operations. While other European countries have much lower VAT registration thresholds, the UK has one of the highest in the world. While this is advantageous for self-employed individuals, it creates a significant disadvantage for businesses that want to grow.

Moreover, the current inflationary environment means that even those who do not want to expand their business may be forced to do so simply because they are required to raise their prices to keep up with inflation. This, in turn, pushes them over the VAT registration threshold, even if they had no intention of doing so.

The message to business owners, then, is clear: “Go big or go home.” There is no point in remaining just under the threshold if it prevents you from growing your business and realizing its full potential. However, business owners should also be deliberate about their growth strategy and take into account their margins when deciding whether to register for VAT.

In conclusion, the VAT registration threshold is holding back the UK economy, and it’s time for policymakers to take action. By lowering the threshold or implementing other measures to incentivize business growth, we can create more jobs, stimulate economic growth, and ensure that the UK remains competitive on the global stage.

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