Small businesses are taking cash-in-hand work to avoid breaching the VAT threshold, a Conservative Westminster hopeful has said.
Speaking at the Standing up for Scotland’s businesses event at the Scottish Tory conference, Harriet Cross, the party’s candidate in Gordon and Buchan, told delegates it was “not a secret that there's a lot of people around the VAT threshold who probably do a wee bit more a sort of jobs for cash than they ought to.”
Currently, businesses have to register for VAT if their taxable turnover is more than £85,000 a year.
It has been frozen at that level since 2017/18 and due to remain the same until March 2026.
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Recent OBR forecasts suggest this "stealth tax" should raise £1.4 billion a year in VAT revenues by 2027-28, by dragging the number of companies eligible for the levy by 169,000.
That's led to "bunching" where traders keep their turnover just below £85,000 by turning down work.
There has been an industry push to have that threshold increased in line with inflation for some time.
However, Jeremy Hunt has, so far, always opted to keep it as it is rather than raise it in line with inflation.
Asking a question from the floor at the debate, Colin Borland, Director of Devolved Nations for the Federation of Small Business, urged the panel to do what they could to encourage the Chancellor to look again when he sets out his tax and spending plans on Wednesday.
He told delegates: “We have something like 44,000 small businesses across the country that are currently turning down work so that they can stay below the £85,000 VAT threshold.
“Now, the Office for Budget Responsibility estimates this is costing the economy hundreds of millions of pounds in terms of deferred lost business.
“So wouldn't the easiest thing for the Chancellor to do to boost growth, to uprate that inflation, linked to inflation, up to £100,000?”
Responding from the floor, Ms Cross, a Chartered Rural Surveyor, said she had some sympathy.
She said: “I think if we take as a given that low tax increases growth, then on the same breath higher thresholds also aid growth.
“So thresholds for taxes, so whether VAT, whether it personal taxation, if you bring the threshold up, it doesn't prevent people from aspiring and from growing.
“Small SMEs are the ones that the VAT threshold particularly impacts.
“And they're the ones in our economy, which across the country they bring growth to local areas in particular, has a lot of employment for their areas, but are also the ones that develop and bring the country on as a whole.”
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She added: “It's not a secret that there's a lot of people around the VAT threshold who probably do a wee bit more a sort of jobs for cash than they ought to and if the threshold was higher, then we will increase revenues in the VAT box.
“And companies can actually just be a bit more transparent about it.”
Liz Smith, the party’s finance spokesperson at Holyrood, said she and Douglas Ross had written to Mr Hunt urging him to make representations on the VAT threshold.
The Treasury has been approached for comment.
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