A Third of Micro Businesses Risk Penalties Due to Unpaid VAT

Lack of awareness amongst micro business owners could mean 780,000 firms owe VAT money to HMRC

A Third of Micro Businesses Risk Penalties Due to Unpaid VAT

Over a third (36%) of micro businesses are unaware of the VAT threshold which could mean they have unintentionally not been paying their VAT bills to HM Revenue & Customs (HMRC), according to research by small business insurer Direct Line for Business.

Of the micro companies (less than 10 employees) surveyed that are conscious of the threshold, one in 10 have purposely limited sales to avoid paying VAT – with 27% ceasing trading for a period in order to do so.

According to the report, many small businesses choose to remain within the VAT limit in order to compete with other companies so as to keep their goods and services at a lower rate.

The VAT threshold currently stands at £82,000. If a business’ turnover of VAT taxable goods and services (supplied within the UK) for the year prior to April 1 is over this limit then businesses are required to pay VAT.

The report emphasised that small business owners are risking both fines and missing out on opportunities to reduce businesses costs by not informing themselves of VAT obligations and where they can recover VAT on purchases made for their company.

Direct Line for Business’ director, Jasvinder Gakhal, commented on the research:

“We are a fantastically entrepreneurial nation with increasing numbers of businesses being started all the time, but these companies still have tax obligations even if they are run out of a bedroom or a garage.

“Often entrepreneurs are so focussed on growing sales and managing day-to-day business operations, they overlook taking out the relevant insurance protections, or reviewing their tax obligations.”

For more information on VAT and legal obligations, check out Startups.co.uk’s advice and guides on business red tape here.

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