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Value Added Tax

Volume 113: debated on Tuesday 26 May 1987

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3.

asked the Chancellor of the Exchequer what recent representations he has received about Her Majesty's Customs and Excise consultation paper "Value Added Tax: Small Business Review".

The consultation paper on VAT was widely welcomed. My right hon. Friend announced in his Budget statement that most of the proposals would be implemented, including cash accounting, with the turnover limit raised from £100,000 to £250,000.

Is my hon. Friend aware of the delight in the small business community at the changes in accounting which the Chancellor of the Exchequer introduced in the Budget and which will improve the tax position of about half of all registered traders? Does he agree that this will lead to the further promotion of more small businesses and more jobs in this vital sector?

I agree that this is a most important measure for small businesses. As my hon. and learned Friend rightly said, the £250,000 threshold for cash accounting covers about 840,000 traders — more than half of all traders who are registered for VAT. It was interesting to note that when the Budget resolutions were voted upon, on a Liberal and SDP initiative, the Opposition parties voted against the very resolution which enables cash accounting to be introduced.

Does my hon. Friend accept that the prompt action on the Customs and Excise review has been well received by all those who want to encourage small firms and the self-employed? Does he also accept that the change to a cash accounting basis will give a welcome boost to cash flows, which in the past have often caused great problems to such firms? Will my hon. Friend address himself to another aspect—raising the VAT threshold for smaller firms from £21,000 to £50,000? Will he continue working to get European agreement on that, because that would also be a great help?

I note what my hon. Friend says about the threshold for registration. As he will know, we have raised that in the Budget in accordance with inflation. There is a proposal in the European Community for 35,000 ecu, which is the equivalent of £26,000. In addition, the cash flow for small companies will be benefited not only by the measures that my right hon. Friend has announced in respect of VAT, but by the 27 per cent. corporation tax for small companies. That will be helpful to their investment.

When can we hope for VAT to return to the 8 per cent. that it was under Labour?

The Labour Government also had a 12½ per cent. rate for VAT. I should have thought that the fact that the Labour party is complaining about excessive consumer expenditure is hardly an argument for reducing the VAT rate.