Contractor VAT Threshold to be Slashed from £85,000 to £26,000

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Contractor VAT Threshold
Contractor VAT Threshold

Contractor VAT Threshold

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There have been Budget leaks over the past few days to national newspapers suggesting that the Chancellor is considering slashing the contractor VAT Threshold to just £26,000 from its current £85,000.

He reckons this will bring in extra £2bn a year.

This will mean that virtually all freelancers will have to pay VAT.

That will add considerably to the admnistrative burden that contractors will have in the future.

Those contractors who already have to fill out the form every few months know what a pain in the neck it is having to do it.

Small Businesses Hit by Decrease in VAT Threshold

Of course, it is not just freelancers but all businesses which will be hit.

So, it will hit lots of small businesses too.

Of course, the clients of most contractors can claim back the VAT that contractors charge them.

That’s unless they are a financial company. The clients of Finance and Banking contractors won’t be able to claim it back.

So, it doesn’t make any sense making the majority of contractors charge VAT and then giving it back to companies who they charge.

Indeed, contractors can actually make a little bit out of it by being able to offset some costs against their VAT.

However, most contractors would much rather not have the administrative burden of having to do it all.

Financial and Banking Companies and the the Contractor VAT Threshold

Then there are those contractors who work for financial companies who cannot claim back the VAT.

What happens if the contractor suddenly slaps a huge extra cost on the clients hiring them?

It’s possible that the clients will say ‘no thanks’ or ‘you’ll have to decrease your rate to cover it’ or suggest that the burden should be split.

This is yet another pain in the neck that the Government has heaped onto contractors – and for some, an extra cost.

Freelancers Group IPSE

Said contractors Group IPSE Chief executive, Chris Bryce, “The nation’s self-employed could be excused for thinking Mr Hammond is waging war with the way they choose to work.”

That’s very true.

However, some freelancers would say that if contractors had a more effective lobbying body the Government wouldn’t feel so free to beat up on freelancers so often and so easily.

Considering Decreasing the Contractor VAT Threshold

The Budget leak does say that this is something that the Chancellor is considering for his Budget.

It seems that some Conervative backbenchers are opposed to this.

It’s starnge that just a few days before he stands up to announce his Budget that the press leak says he is ‘considering’ this.

Surely he would know by now what he is doing?

Chancellor Testing the Air on Budget

Sometimes Chancellors leak some aspects of the budget beforehand saying that they are considering it.

This usually means that they are testing the air before deciding whether to put it in the Budget or not.

Let’s hope that he decides against decreasing the contractor VAT Threshold and that his backbenchers tell him that they won’t support it.

We’ll know very shortly.

Look in to www.ITContractor.com to find out what the Chancellor actually does in his Budget on Wednesday and for analysis as to how this will hit contractors.

For further info on Budget proposals that hit contractors read Theresa May to Abolish Contracting Profession in April 2018.

Budget Update

After leaking to the Press that he was considering reducing the VAT threshold from £85,000 to £26,000 the Chancellor decided that discretion is the beter part of valour.

He said in the budget that he would keep it at £85,000 for the next two years.

There must have been some reaction from his backbencher to this.

However, he said that he would consult on this for future years.

So, it’s gone for now but may be back in a coouple of years.

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