IPSE welcomes Spring Statement focus on self-employed but 'dark cloud' hovers over VAT


Lowering the VAT threshold would do serious damage to small businesses and the self-employed, IPSE has warned. The possibility of lowering the threshold arose after the Government released a ‘Call for evidence’ on the Treasury’s website today – which was not mentioned in the Chancellor’s Spring Statement.

There were some positives for the self-employed in the Spring Statement – such as consultations on tax-free training for the self-employed and ways to clamp down on late payments (both of which IPSE has been campaigning for). However, lowering the VAT threshold would be a significant blow for the self-employed.

Clamping down on late payments

Late payments are an ongoing blight on the self-employed. IPSE research shows freelancers spend approximately 20 days a year chasing invoices for late payments. It is highly welcome that alongside the office of the Small Business Commissioner, the Chancellor will also be consulting on other ways of stopping late and even non-payment by clients.

Tax-free training for the self-employed

The current training tax system is unjust because it does not allow freelancers and the self-employed the same relief for training as employees. And, as IPSE’s report on vulnerable work has shown, one of the biggest barriers to vulnerable self-employed people improving their circumstances is poor access to training. The prospect of tax-free training options for the self-employed is a major victory for IPSE, and should be welcomed by all. 

Lowering the VAT threshold

Although at this stage the Government has not pledged to change VAT thresholds, its call for evidence should be viewed cautiously. If the Government were to decide to lower the VAT threshold, it would be a disaster for small businesses and the self-employed.

Lowering the threshold would compel small business owners – everyone from handymen to hairdressers – to choose between raising their prices, which could drive away customers, or absorbing the cost of the VAT rise themselves. It would also actively discourage many small businesses from growing beyond the threshold. It would also impose a significant bureaucratic burden on many self-employed people when they already have to expend large amounts of valuable time on the bureaucracy of tax self-assessments.

Chris Bryce, IPSE’s CEO, commented: “There were certainly some wins in today’s spring statement for the self-employed – not least the very welcome consultation on making training tax-free for the self-employed. But the low-key way the Government has released this ‘Call for evidence’ on lowering the VAT threshold is surely not the best way to go about things. If the Government was indeed to lower the threshold, it would create a nightmare scenario for many thousands of our smallest businesses. Slipping this prospect under the radar is just not a positive approach. We hope the Government will be more up-front with the self-employed community in future.

“If this did ultimately lead to a drop in the VAT threshold, it would cause serious cash-flow problems for many self-employed people. They would quickly face the stark choice of either raising their prices – causing them to lose customers – or absorbing the cost themselves, which would do significant damage to their businesses. The change would also introduce a sea of red tape for smaller businesses and actively discourage them from expanding. We urge the Chancellor not to consider damaging small businesses and the self-employed with a VAT threshold drop, but instead give them the support and protection they need.”

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