VAT Registration Threshold: SMEs

Daisy Cooper Excerpts

Tuesday 24th June 2025 Westminster Hall

[Daisy Cooper (St Albans) (LD)]

It is a pleasure to serve under your chairship, Mr Vickers. I congratulate the hon. Member for Mid Leicestershire (Mr Bedford) on securing this important debate. It is a pleasure to wind up on behalf of the Liberal Democrats.

As we have heard from a number of colleagues, small and medium-sized enterprises are the heartbeat of our local economies. It is not just that they are the engine of growth: they have enormous social impact too. Whether it is the physios or beauty technicians who travel to people’s homes, sometimes to visit older people who are less mobile and cannot get out, or market traders selling the wares they have made at home, sole traders and small businesses bring real vibrancy to our local economies, and we must do everything we can to support them. I am proud that the Liberal Democrats have tabled various amendments to Government legislation to call for impact assessments on measures that affect small businesses, including the changes to national insurance contributions, the Employment Rights Bill and the business rates changes.

The jobs tax will hit small businesses particularly hard. The change in the threshold as well as the rates particularly gets small businesses. The Government’s proposals on business rates will be very difficult for small businesses. It is not just about the changes this year, with the bills going up; next year, under the Government’s proposals, small independent businesses will effectively subside the larger chains.

I say with some affection to the hon. Member for Strangford (Jim Shannon) that although he wishes he had the same Brexit as everyone else, he should be careful what he wishes for. I am sure he will know from Liberal Democrat research that since the Conservatives botched the Brexit deal small businesses have had to complete 2 billion extra pieces of paperwork thanks to Brexit red tape—enough to wrap around the world 15 times. I am sure none of us want to see additional red tape for small businesses and sole traders.

We have heard compelling arguments that the Government should at the very least look at the VAT regime. Do they have any plans to change it or review the threshold? We Liberal Democrats would welcome a review and would be keen to see any impact assessment that the Government might commission. There have been compelling arguments about simplifying the system. From what colleagues across the House have said, we know that the current threshold deters sole traders and others from earning more, which is really bad for growth.

Many people want to avoid the complicated form-filling, and I hear from my constituents that they also want to avoid the misery of sitting on the phone trying to get through to HMRC. We have all heard horror stories of people calling time and time again, only to have their calls cut off, unable to get through or get the advice they need. Will the Minister give an update on what is happening in HMRC to provide additional support for small businesses in particular? We know that those who are incredibly wealthy have a direct line to HMRC, but our small businesses—the engines of growth—often struggle to get the advice they need.

We urge the Government to simplify the VAT regime, and there are companies with proposals on how to do that. One quick example, which is slightly different from today’s topic, is that Amazon is working with HMRC to discuss cracking down on resellers, to tackle VAT tax avoidance by shell companies and avoid the situation many people experience when they order something from an online marketplace and either it is not very good quality when it arrives or it does not arrive at all. Conversations are happening about how to simplify the process for legitimate sellers on platforms. If there are big-eyed companies out there with ideas on how to simplify the VAT registration system, I very much hope the Government will take them up and roll them out not just to those who sell online but to those who sell in our communities.

Finally, the Minister will have heard over several months from colleagues across the House that small businesses are very different, and that one size does not fit all. Small businesses struggle with the paperwork, and do not have the lawyers or HR departments that larger businesses have, so I urge the Minister to consider proposals for a small business one-stop shop, to make sure that small businesses across the land receive the advice they desperately need.