UK Chancellor Jeremy Hunt is today reported to be plotting a "stealth" tax raid on small businesses that will force thousands more to pay VAT as he scrambles to balance the country's books.

He is preparing to hold the threshold at which firms must register to pay VAT at £85,000 of turnover until 2026, instead of raising it in line with inflation.

The Telegraph says the plan means that thousands more businesses will pay the tax for the first time as their turnover increases in line with rising prices.

That threshold has already been frozen until 2024, but Mr Hunt and Rishi Sunak, the Prime Minister, are considering extending this by another two years.

Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said: "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.

VAT threshold

"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."

Duncan Simpson, chief economist at the TaxPayers' Alliance, said: "Freezing thresholds at a time of high inflation is tantamount to tax hikes.

"VAT places a great administrative burden on businesses, not least on the small firms who now face the prospect of exceeding the threshold and being dragged into a new tax.

"Ministers must avoid crippling micro-businesses with these stealth tax rises."

Earlier this month it emerged that Mr Sunak is drawing up plans for years of tax rises for everyone in the country, as a Treasury source warned: "It's going to be rough".

Mr Hunt and Mr Sunak are still putting the finishing touches to next Thursday's Budget.

Black hole

They have warned they have to fill a fiscal black hole of up to £60billion, of which around £35billion will come from spending cuts and £25billion from tax rises.

There is mounting concern in the North Sea oil sector that it will be targeted for a sizeable chunk of the extra tax being raked in.

The chancellor is believed to be preparing to unleash a second round of the controversial energy-profits levy on oil producers.

It is understood that this additional tax on offshore operators could be raised from 25% to 30% and extended by three years to 2028. Officials have also been working on plans to widen the levy to include electricity generators.

FTSE 100

The UK's top share index, the FTSE 100, was down 22 points at 7,353 shortly after opening this morning, following yesterday's 79-point gain.

Brent crude futures were 2.56% higher at $96.07 a barrel.

Companies reporting today

  • Half-year results: Urban Logistics REIT

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