A former top civil servant who is advising Labour on tax has suggested the threshold for VAT registration should be halved in a move which would hit hundreds of thousands of small businesses.
Sir Edward Troup, a former head of HMRC, said that lowering the threshold would have “been a better way to remove a barrier to growth” than the Government’s recent decision to raise it.
Labour announced earlier this month that Sir Edward would be advising the party on “improving tax compliance” and “modernising” HMRC.
We both gave evidence in the same session to a Commons committee.
It would be fair to say that he knows little of the economics of taxation. Lots about HMRC, about tax, about bureaucracy and government, as you’d expect, but little about the economics of taxation.
However, the move was criticised at the time by Sir Edward. Responding to the news on X, formerly known as Twitter, he said: “Halving the threshold would have been a better way to remove a barrier to growth.”
Such a move would result in hundreds of thousands of additional small businesses having to charge VAT.
According to one set of costings seen by The Telegraph, lowering the threshold to £50,000 – a figure close to Sir Edward’s suggestion – would mean 351,000 more businesses having to register for the tax in 2025-26.
Sir Edward and others have argued for the threshold to be lowered on the basis that it is high by international standards, and because there is evidence that small businesses limit their annual turnover to avoid having to register.
None of that is a good economic reason to lower the VAT limit. A good economic reason to keep raising it is that VAT imposes bureaucracy costs. £90k is still in the region of one man bands – £50k definitely, even definitively, is. It is not desirable to load sole traders with that bureaucratic burden. Therefore we shouldn’t.
A bureaucrat knighted for being a senior, if totally crap, bureaucrat, thinks more paperwork will make every one richer. As someone brought up on tales of knights defeating and Armada or slaying dragons or discovering continents, 21st century stories of knights being wankers is a bit sad.
Halve the VAT threshold and prompt:
1) An increase in the dusky economy with particularly services undertaken on a cash-in-hand basis;
2) An increase in company registrations so a trader can operate under different companies that each fall below the threshold.
You are making the mistake that they are looking at the same as you are.
You think the point is to improve businesses and help them grow so they contribute more to the treasure in the long run with less wasteful paper pushing.
They think the point is to get more cash in quicker and they don’t consider any paper pushing wasteful, especially paper pushing that costs them nothing. So why would economics be of interest to them?
They are simply legal thieves.
‘Civil’ ‘Servant’ is in favour of a job creation scheme for Civil Servants. Gosh.
Ooh, doesn’t this bit – ” there is evidence that small businesses limit their annual turnover to avoid having to register” – run counter to just about every left-winger in existence? Seems that they’re certain there are no dead weight costs to taxes, nobody changes behavior in response, no Laffer Curve, etc.
Sir Edward Troup, a former head of HMRC, said that lowering the threshold would have “been a better way to remove a barrier to growth”
Only a civil servant who has never run a business in his life (and would probably struggle to manage the mythical “whelk stall”) could suggest such an inane idea that “growth” would be improved by imposing more bureaucracy and unpaid-tax-collecting on small businesses.
“Growth” in the “tax industry” maybe, but a strong incentive for “cash-in-hand” trading for those poor devils trying to make a living!
“on the basis that it is high by international standards”: another of those cunts who, if they see foreigners doing something different from us, argue that this proves we’re wrong. Hang him.
Sir Edward Troup
“Sir” means the same thing as “Lord”, “The Right Honourable”, “OBE”, etc.
It means he’s a cunt.
TMB has it right. All manner of small sole traders will magically have a £49999 turnover and books to prove it. And this cunight has no idea of how to run a business or expand it and certainly not live on £50Kpa.
Guppy Troup probably wouldn’t have had any more idiotic ramblings about tax than Mr. Edward.
I’ve made sure my small business doesn’t go over the threshold, ever. I’d rather take a couple of months holiday each year than become an unpaid taxcunt.
” An increase in company registrations so a trader can operate under different companies that each fall below the threshold.”
This happens now. I’m employing various tradesmen at the moment, I get invoices from a number of different companies for the same bloke working on site.
Jim: This happens now.
Yes, and a somewhat concerning thing (you’re quite hot on this I think) is that if you have a quiverful of Ltd.s then you needn’t concern yourself overmuch with offering guarantees for your work because if the guarantee is called that Ltd can simply fold and a new one can be created to handle the turnover.
Trouble is these civil servants think they are soooo clever
Local tradesman run rings around them
Our plumber is a young lad, really good yet adamant that he won’t take on an apprentice or register for VAT
He minimises his contact with the state’s business killers. Tools, van etc go through the business. All materials are bought by his customers, we are only paying for his time and expertise
He lives well on 25% tax
this cunight has no idea of how to run a business or expand it and certainly not live on £50Kpa
Too true. And, of course, £50k is turnover – you’ve got to live on the profit you can make from that. If you’re running a market stall, maybe 10-20%; if you’re a window cleaner, maybe 50%.
£50K small B2B, 10% margin, £5K profit. Maybe £400 annually to get some accountant to do your VAT returns, you are then paying compliance costs equivalent to a 6.5% profit tax. All to pay a sum that will be simply be claimed back from HMRC as input tax by your customer.
The flat-rate VAT scheme could be made progressive, to reduce the cliff-edge of registration. That would then allow for lowering the registration threshold. Paperwork on the flat-rate scheme is fairly minimal too. I appreciate not everyone can use it though.
Happened to be discussing this with some friends who had registered sole proprietorships in their name to do consulting work part time on the side and sales tax limit was $30k so they were careful to keep to that. They were also complaining about where any level of government wanted letters from various other government agencies to prove you were exempt from certain regulations as a one man band despite the government websites clearly stating the fact and other requirements that ran to about $2,000 a year in registration fees
Maybe what the civil servant in this case means is this will further wipe out small businesses and drive work to the large companies that can do all the government required paperwork and hire senior civil servants once they retire
“he knows little of the economics of taxation.”
I’ve been wondering about this. How can you devote much of a career to gouging without devoting any thought to the economics of gouging? I’m familiar with a world where intelligent people are often reflective people. It sounds as if our laddie isn’t – isn’t reflective, I mean. Even answering questions from a bright fourteen year-old – if he ever had one – would surely press one towards reflecting on the economic consequences of one’s work. It’s not as if such elementary economic ideas are difficult.
I see his trade is lawyering. Maybe they are not a reflective mob.
Friend of mine closes his business each year and goes on holiday when VAT limit approached. It should be doubled, not halved. Limit in EU countries is irrelevant
no one related in any way to HMRC should be allowed to talk about tax policy, given their brief is to collect the stuff. Not just because they don’t understand it. Conflict of interest!
Was he the t*sspot in that commons committee session on the wealth tax? If so, was he the t*sspot that said something along the lines of “VAT is the simplest way to raise revenue: you just increase the rate and more cash comes in”
What a complete w&nker. He has literally no idea on the impact of business of changing rates. It’s an absolute shitshow across the board. Just because HMRC doesn’t have to do much work doesn’t mean that it’s all fine and dandy out there in the real world.
What an utter cock.
Yes, and that does nicely sum him up.