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Small Businesses And Vat

Volume 417: debated on Monday 9 February 1981

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2.40 p.m.

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government whether, as part of their policy to aid small businesses, they will raise the VAT threshold from £25,000 to £50,000.

My Lords, the VAT registration threshold is at present £13,500, not £25,000 as my noble friend suggests. Any change in the threshold is a matter for the Budget statement of my right honourable friend the Chancellor of the Exchequer, which I am unable to anticipate.

My Lords, I am grateful to my noble friend the Minister for that Answer, including his correction, and I apologise for being misinformed of the facts. Does my noble friend not agree that the easing of taxation would assist productivity in small businesses as well as in others?

My Lords, I am grateful to my noble friend for what he says. I think that the easing of taxation would be to everybody's benefit, but, so far as the VAT threshold is concerned, there was a very substantial increase last year from £10,000 to £13,500, and any further increase is a matter for my right honourable friend the Chancellor of the Exchequer.

My Lords, would my noble friend the Minister not agree that to have to do all the form-filling and all the other accounting that is required for VAT purposes is a very heavy burden on small employers and small businesses? Would he not also agree that it would increase productivity if the threshold was raised a lot higher? May I further ask my noble friend why small businessmen should be unpaid tax collectors? It really is a great imposition.

My Lord, my noble friend raises a number of points. First of all, the simple fact is that when the threshold was increased substantially last year some 80 per cent. of the businesses which were entitled to be deregistered did not do so. We are of course anxious to reduce the burden of administration wherever that can be done, but the collection of tax at the source—and the collection of VAT is an example of this—has existed in the tax system of this country, and indeed of almost every other country, for a very long period of time.

My Lords, would my noble friend not agree with me that in many cases small businesses profit in terms of cash flow by being unpaid tax collectors in that they have the use of VAT money until it has to be returned?

My Lords, that is a perfectly true and valid point. Indeed, very large sums of money are provided as working capital for business through the machinery which is adopted for the collection of VAT.

My Lords, did the noble Lord see in the recent edition of "The Money Programme" on BBC television the sale of factory machinery, when the extremely interesting point (which was not made much of in that programme) was made that, although major firms were selling off, the firms which were doing best, and to whom machinery was selling most briskly, were the small firms? Will he not agree with me that this shows that there is a growth of small industry willing to be encouraged and able to be encouraged in this country, and that this is the best and most promising way of getting out of our present entanglements and the unemployment problem?

My Lords, there is a considerable growth potential in small businesses and we are anxious to give it every possible encouragement.

My Lords, would the noble Lord agree that raising the VAT level would be a contribution to encouraging entrepreneurs in the hidden economy to come out into the open and that that would be of great assistance in a number of directions?

My Lords, the point raised by the noble Baroness is one that has been raised on a number of occasions. I very much doubt whether an increase in the registration limit would have any very significant effect on the size of the black economy.

My Lords, would the Minister not agree that 90 per cent. of the revenue collected by Customs and Excise for VAT is contributed by fewer than 10 per cent. of the firms who are registered for VAT?

My Lords, it is perfectly true that a very large proportion of the total VAT comes from a relatively small number of firms, but that has no very direct bearing on the level of the threshold.