Stealth VAT raid to hit 60,000 small businesses

JEREMY HUNT’s stealth tax will force 60,000 more small businesses to charge VAT, the Treasury has admitted.

The Chancellor of the Exchequer’s decision to freeze the level at which businesses are required to add the tax to the goods and services they sell will see the Treasury raise £680m.

The measure, in the Autumn Statement, unusually did not include a report of how many businesses it would affect. But in a written parliamentary answer this week, Victoria Atkins, the financial secretary to the Treasury, admitted the department’s analysis shows about 60,000 more small businesses and sole traders would charge the tax.

At present, businesses that have a turnover of less than £85,000 are not required to charge VAT on their goods and services, in a policy designed to reduce prices for customers that shop with smaller outfits. It also means the traders do not have to file a VAT return.

Mr Hunt’s decision to freeze the threshold amounts to a “stealth tax” that will see more businesses dragged above the limit as inflation increases their turnover. The threshold had already been frozen at the current level by Rishi Sunak in 2021, when he was chancellor.

That decision will keep the current turnover threshold until 2024, raising £180m in extra tax. But Mr Hunt’s statement said the £85,000 limit would remain for a further two years until April 2026, raising a further £680m.

The news comes ahead of the second reading of the Government’s Finance Bill, which provides the legislation required for tax rises in the Autumn Statement tomorrow. Liberal Democrat MPs are planning an amendment that would require HMRC to write to anyone affected by the freezing of income tax thresholds, explaining how much more they will be required to pay. The amendment is not expected to pass.