The Treasury is considering a £2billion tax raid on small businesses as Rachel Reeves scrambles to balance the books in the autumn Budget.
Officials are looking at proposals to slash the threshold at which small businesses and sole traders have to register for VAT.
The idea, which has been pushed by the Treasury for years, is among a string of tax-raising proposals which have been ‘dusted off’ as the Chancellor tries to fill a black hole in the public finances, which economists say could total £50billion.
Insiders warned yesterday that the idea is backed by the Chancellor’s new Budget supremo, Torsten Bell, and Treasury tax chief Dan York-Smith, who is tipped to take over as Sir Keir Starmer‘s private secretary following this week’s No 10 shake-up.
Under current rules, businesses do not have to register for VAT until they reach a turnover of £90,000.
Mr Bell has previously backed calls for the threshold to be cut to just £30,000, dragging in tens of thousands of small firms and sole traders.
Business leaders have warned the move would be a disaster, increasing costs and red tape on entrepreneurs.
The Federation of Small Businesses is lobbying the Government to increase the threshold to £100,000.
The Treasury is considering a £2billion tax raid on small businesses as Rachel Reeves (pictured at the Budget last year) scrambles to balance the books in the autumn Budget
Insiders warned yesterday that the idea is backed by the Chancellor’s new Budget supremo, Torsten Bell (pictured last month)
They also warned it is backed by Treasury tax chief Dan York-Smith (pictured) too, who is tipped to take over as Sir Keir Starmer’s private secretary following this week’s No 10 shake-up
Tina Mackenzie, policy chief at the group, said: ‘To unlock economic growth we all know is desperately needed, the VAT threshold should be raised further, to £100,000.
‘A higher threshold would encourage thousands of small firms to expand, increasing the tax take and providing more jobs and opportunities.’
But some economists argue that the current threshold encourages firms to try to cap their turnover just below the limit, with some traders even reportedly taking long holidays to avoid breaching it.
Insiders say the impending arrival of Mr York-Smith at No 10 has increased the likelihood of the raid going ahead.
He is head of tax and welfare policy at the Treasury and has been in charge of the vital ‘scorecard’ which ensures the Budget numbers add up.
A Whitehall source told the Daily Mail that Mr York-Smith had pushed for the VAT threshold on small businesses to be reduced dramatically at previous Budgets.
He is also said to have made the case for levying National Insurance on pensioners and introducing road pricing for electric vehicles.
‘Dan is a bright guy and may prove to be a good appointment but he does love his taxes,’ the source said.
The idea, which has been pushed by the Treasury for years, is among a string of tax-raising proposals which have been ‘dusted off’ as the Chancellor (pictured in May) tries to fill a black hole in the public finances
‘With him and Torsten, you are going to have two super-smart guys who know how the system works making the case for this and other changes they have wanted for years.
‘The question is who is going to exercise the political judgment to prevent them making another winter fuel-style mistake that has to be reversed.’
The Treasury declined to comment on ‘speculation’ ahead of the Budget.
A Treasury spokesman said last night: ‘The best way to strengthen public finances is by growing the economy – which is our focus.’
