Vol. 499 No. 3
225 Mr. R. Bruton asked the Minister for Finance if his attention has been drawn to the fact that the VAT threshold for service businesses in Ireland is less than half that operating in the United Kingdom; his views on whether the current £20,000 threshold is so low it would not even generate a weekly wage for one person; and if he will modify the threshold. [2727/99]
In Ireland the services registration threshold is £20,000 while the goods registration threshold is £40,000. Taxable persons are required to register and account for VAT if turnover exceeds these amounts in any twelve month period. In the UK the registration threshold is UK £50,000 for both goods and services. Apart from the UK, which has the highest VAT registration thresholds in the EU, Ireland's VAT thresholds are high relative to other member states as some require all businesses irrespective of size to register for VAT.
A higher services registration threshold would contribute to a distortion of competition for those businesses trading close to the level at which registration is required, since those immediately above it are required to register and pay VAT on their entire turnover, while those below it need not. Since the significant cost to service businesses is direct labour costs, and since such costs do not bear VAT, the financial advantage would favour the business below the threshold.
A higher services registration threshold also allows for increased risk of avoidance since it makes it easier for a business to avoid registration and the line between an unregistered business and the black economy becomes difficult to identify. A higher threshold also has implications for the Exchequer in terms of reduced VAT revenue.
The current services VAT registration threshold of £20,000 excludes genuinely small service businesses while preventing tax based competition and maintaining an important Exchequer contribution. I am not, therefore, inclined to make any changes to the VAT registration thresholds and I am satisfied that the current levels are appropriate.
