It was reported in the Sunday Times that the chancellor is eyeing a short-term cut to VAT in order to encourage the public to get spending and lift the country’s economic crisis.
A reduction to the 20% VAT rate could be made for a fixed period of time in order to stimulate growth and get people buying again, the report said.
Former chancellor Sajid Javid said he would back a year-long cut to VAT from 20% to 17% saying it would ‘turbocharge growth’. The sales tax cut is being considered by the Treasury as part of a broader package, including a potential reduction to employers’ national insurance (NI) contributions.
Despite this news, The Financial Times reported on 22 June 2020 that following a short-term cut to VAT, the chancellor will be looking at hiking taxes in order to reduce the government’s mounting deficit.
Benjamin Dyer, CEO of Powered Now, a billing and accounting software platform for sole traders and small trade businesses, has explained what these proposed cuts could mean for nation's tradespeople:
"For the majority of society, a VAT cut for the wider economy will be a massive boost to the UK looks to avoid a recession but for tradespeople, variable rates of VAT present a vast challenge and long term implications for their cash flow. For too long, many changes in tax rules negatively impact those who work in the field and then have to navigate some of the most complex rules in the marketplace, often late into the evening.
If these new rules do come into effect, tradespeople could have to navigate three different rates of VAT within a year, something that could cause havoc for their bookkeeping. Therefore a simplified system for sole traders may help them plan their business and focus on jobs and getting people back to work as the economy reopens."