Shoppers and firms could pay billions in VAT raid

A VAT shake-up could be about to cost shoppers and three million small businesses billions of pounds a year.

A major overhaul could force any business with a turnover of around £10,000 a year to charge the sales tax to customers.

And in a further measure, the 20 per cent tax could be applied to dozens of items which are currently exempt – adding hundreds of pounds to shoppers’ bills.

The Office for Tax Simplification, which makes recommendations on reform for HM Revenue & Customs, outlined the proposals in a paper last night.

The body was set up by former chancellor George Osborne to streamline the tax system and its measures are normally approved by the Treasury.

If the latest ideas get the green light from the Chancellor Philip Hammond, he risks enraging consumers and small businesses. Mr Hammond has already run foul of the small business community with his bungled attempt to raise National Insurance rates for firms.

Campaigners last night warned against the change, saying that a tax rise could stifle young businesses and damage Britain’s economic competitiveness.

Edwin Morgan, of the Institute of Directors, said: ‘We’re hoping this month’s Budget will simplify or cut taxes rather than raising them.

‘Many of our members started out as entrepreneurs, and we know small businesses need all the help they can get.’

Mike Cherry, of the Federation of Small Businesses, said: ‘Our small business owners should be spending their time and money growing their firms, not navigating an array of different VAT schemes and an inconsistent list of exemptions as long as your arm.’

Value Added Tax, or VAT, is levied on goods and services sold by firms. It has a main rate of 20 per cent which is paid on many high street items. It raised £120billion in 2016-17.

However, there are exemptions. Firms which have a turnover of less than £85,000 don’t have to charge it. And many essential items, such as food, children’s clothing and newspapers, are also exempt from VAT.

The Office for Tax Simplification argues that this creates confusion and unfairness. It claims the current threshold for firms of £85,000 is ‘one of the highest in the world’.

‘Small businesses need help’