RACHEL Reeves could slash VAT thresholds in a bid to tackle sluggish economic growth during her second Budget.
Currently, small businesses must register for VAT if their annual turnover exceeds £90,000.
VAT, or Value Added Tax, is a tax applied to most goods and services in the UK[/caption]
However, the Chancellor is looking at raising the threshold for small businesses in a bid to encourage entrepreneurship and growth, according to The Telegraph.
Alongside this, Reeves is said to be looking at increasing taxes on homeowners, landlords, and workers to help balance government finances.
Earlier this year, Whitehall officials discussed the possibility of raising the VAT threshold as a way to promote business growth.
However, this idea is likely to face opposition from Torsten Bell, the pensions minister, who has significant influence over Budget discussions.
Bell’s former organisation, the Resolution Foundation, has instead called for the VAT threshold to be lowered to £30,000, which would mean more businesses would need to register for VAT.
VAT, or Value Added Tax, is a tax applied to most goods and services in the UK.
Businesses charge VAT on their sales and include it in the price paid by consumers, who ultimately bear the cost.
Businesses that earn above the VAT threshold, which is currently £90,000, must register for VAT with HMRC.
Once registered, they are required to charge VAT on their goods or services and regularly submit VAT returns detailing the VAT they have collected and paid.
They then pay the difference between the VAT collected and the VAT reclaimed to HMRC.
The VAT threshold is significant because it determines which businesses are required to register for VAT.
Raising the threshold means fewer businesses need to register, which reduces administrative burdens and encourages growth among small businesses.
Lowering the threshold would require more businesses to register, increasing government revenue but adding costs and paperwork for smaller businesses.
The Treasury has been contacted for comment.
What other measures are being considered?
Beyond VAT reforms, Reeves is exploring broader tax measures to shore up public finances.
National Insurance on rental income is under review, a move critics warn could hit tenants hard.
Kirstie Allsopp, property expert and TV presenter, slammed the idea as “tenant bashing under the guise of landlord bashing”.
Homeowners may also face changes to inheritance tax, with proposals to cap tax-free gifts between family members.
Such reforms could raise millions for the Treasury but have sparked concerns about disrupting family wealth transfers.
Additionally, whispers of replacing stamp duty with an annual property tax on homes worth over £500,000 have stirred debate, with critics warning of destabilising effects on the housing market.
Officials have also said to be considering whether to replace council tax with a local property tax.
This would mean a total overhaul of the current council tax system, which came into effect in 1993.
Capital gains tax on high-value properties is another possibility, potentially targeting homes valued above £1.5million.
Reports suggest this could affect around 120,000 homeowners, with bills reaching £200,000 for some.
Meanwhile, pension tax relief is under scrutiny, with Reeves considering a flat rate that could reduce benefits for higher earners but raise billions annually.
Despite the raft of potential reforms, Reeves faces mounting pressure to focus on boosting productivity.
Treasury officials fear a growth downgrade from the Office for Budget Responsibility could deepen the financial hole.
Reeves is expected to make economic growth the centrepiece of her next Budget, warning that Britain’s economy is “stuck” and in need of bold solutions.
What should YOU do now
None of the potential changes being tabled have been confirmed yet.
The Government has not yet ruled them out but any measures it introduces will not happen until after the autumn Budget at the earliest – and a date has not been set yet.
Don’t make any rash decisions based on the current Budget speculation.
If and when the changes are announced you can decide to act to stop your finances from being hit.
For example, if the changes to stamp duty are brought in from a certain date then you cold move house before this deadline to avoid being hit.
Or if the Government decides to charge Capital Gains tax on high value properties then you could downsize to a smaller house before the change is implemented.
Most of the suggestions on the table will only affect the very wealthy, so you may not even be hit by the tax changes.
There are some things you can do if you’re worried.
Get financial advice
If you are worried about your finances then you should speak to a financial adviser.
They will be able to offer you advice about your situation and explain if any of the measures will affect you.
You can find one using unbiased.co.uk – but remember, you will pay a fee.
Make a will
First, you should ensure your money gets to the right place by making a will, according to Ms Young.
If you die without a will, your estate will fall under the rules of intestacy, which could mean a higher IHT bill.
This is especially key for couples who aren’t married, as unmarried partners will not automatically inherit from one another, even if they have lived together for many years.
Check how to make one in our guide.
Give your finances a makeover
It’s good practice to sit down and take stock of your finances every six months and work out a plan.
Work out all your bills and outgoings and what income you have and factor in any changes, such as bills going up or new income streams.
Think about what you need to do to make the most of your money. For example, do you need to prioritise paying off debts or saving for a house deposit.
Our guide to paying less tax legally could help you avoid giving away more cash to the tax man than necessary.