According to the government, the plan should reduce the amount of red tape on SMEs and boost attempts to ensure the UK is ‘the best business environment in the World’.
Companies with an income threshold of up to £54,000 will not be required to register for VAT – the most generous rate in Europe according to chancellor Gordon Brown.
The move is expected to keep an estimated 8,000 of the smallest SMEs from having to register for VAT.
Additionally, SMEs with income of between £54,001 and £100,000 will be entered into a halfway VAT environment. Companies earning over £100,001 will then be required to entered into the full VAT environment.
Further consultation is expected in the summer on the tax treatments, with announcements expected next year.
Tax experts said they would wait and see whether the suggestions are as simple to implement and administer as the government has suggested.
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