Jeremy Hunt ‘plans stealth VAT raid’ on small businesses

Threshold freeze could leave thousands more businesses owing Treasury

Jeremy Hunt is reportedly planning a stealth move to force small businesses to pay thousands more in VAT as part of measures to plug a fiscal black hole feared to be as wide as £60bn.

The chancellor will take to the House of Commons next Thursday to deliver a fiscal statement that will define Rishi Sunak’s nascent government, as the prime minister seeks to distance himself from the disastrous reign of Liz Truss, his short-lived predecessor.

A mix of spending cuts and tax rises are expected in the economic policy package, with details of several thrifty schemes leaking out in recent weeks, including reports of a council tax rise, a masked raid on pensions and a hike in the levy collected from capital gains.

Mr Hunt is preparing to hit small businesses by holding the threshold at which managers must register to pay VAT at £85,000 of taxable turnover until 2026, instead of raising it in line with inflation, The Telegraph reported.

The plan would leave thousands more businesses paying the tax than before as their turnover increases with rising prices. The threshold was already frozen until 2024.

Craig Beaumont, chief of external affairs at the Federation of Small Businesses, told the paper: “Freezing the threshold will land badly with businesses and drag more small firms into paying it as their costs and prices rise.

“Our research shows close to a quarter of small firms see the VAT threshold as a barrier to growth. Keeping it frozen would be a genuinely anti-growth measure for a large section of the economy, disincentivising those who’re now below the threshold to be active.

“If the chancellor, a former entrepreneur himself, is serious about encouraging suppressed economic activity, he should instead raise the VAT threshold to £100,000, and deliver the Treasury’s promise to look at phasing the threshold so that it doesn’t cause such a cliff-edge. Simply freezing it would be a rather short-sighted move.”

The prime minister and chancellor have agreed that “tough decisions” would be needed for the fiscal statement, given the damage done to Britain’s economic credibility by Ms Truss and her chancellor Kwasi Kwarteng.

The pair are thought to be planning wide-reaching tax rises in an effort to balance the Treasury’s books. Many of them are expected to be so-called stealth rises, including an extension to the existing freeze on income tax thresholds beyond 2025/6, dragging millions of workers into higher bands.