Lowering VAT Threshold: A Double-Edged Sword

Lowering the VAT threshold for businesses could bring more entities into the VAT-paying net, facilitating tax equity, but also risks severe consequences for small businesses, particularly in economically disadvantaged areas. Such businesses may struggle to stay afloat if compelled to hike prices by 20%, leading to potential closures that harm local economies. Current estimates indicate that about 26,000 businesses limit their growth to avoid surpassing the VAT threshold of £90,000 turnover, with a suggestion to decrease this threshold to around £12,000. This change could incentivize growth but at the risk of increased financial pressure on smaller entities.