Tax reform in Guernsey is back up for debate this month (Sept 2023). Guernsey Chamber of Commerce provide an excellent paper on the Tax Reform proposals and seek member views in their survey – see here for links to the paper and survey. We urge Guernsey businesses to read the briefing and engage in the survey.
We also would like to focus on some myths we keep hearing about GST, in particular in the context of how difficult and expensive the admin will be and that an easy solution for many businesses would be to just opt out, i.e. if you have turnover under £300k you could chose to not register for GST.
Recent statements on the GST topic have raised concerns among Guernsey’s small businesses. P&R’s headline announced, “more than 50% of non-finance businesses won’t need to register for GST.” Meanwhile, another deputy highlighted concerns about sophisticated software programs, which can be expensive and require expertise to implement and maintain. These comments, from both pro and anti-GST sides, unfortunately don’t alleviate the worries of our local small businesses about potential changes.
We believe that should GST be introduced, businesses should choose whether to register based not just on the proposed threshold, but also considering their individual operational dynamics, target market, and future goals. Employing the right systems and tools can ease the administrative load, making it accessible even for businesses unfamiliar with GST. As always, it’s wise to consult with financial professionals or accountants on such matters.
It’s worth noting P&R suggests a high GST registration threshold of £300,000, a significant increase from the UK’s £85,000 VAT limit. While this appears to be a boon for smaller businesses, reducing administrative burdens, it’s crucial for businesses to understand the broader implications of choosing to stay unregistered.
Diane de Garis, Director of DNA LTD and President of Chamber: “Personally, I question the wisdom behind such a towering threshold. With today’s advanced accounting systems, managing GST can be a breeze. The potential advantages of reclaiming input GST often surpass administrative concerns. Setting a high bar might inadvertently hinder growth; businesses might limit expansion to elude GST registration. This could inadvertently position them as the ultimate GST payers, being at the bottom of the chain. Furthermore, a marked division might arise, with unregistered businesses predominantly trading with their unregistered counterparts, thereby missing out on GST claims.”
Voluntarily GST registration presents benefits such as:
- Input GST Claims: You can recoup GST from business-related purchases, which can result in substantial savings.
- Growth Strategy: Early registration facilitates smoother future transitions if and when you cross the threshold.
- Tax neutrality: In registering for GST, your business effectively becomes “neutral” in the tax chain: it collects and pays out, with the net amount being forwarded to the tax authority. The ultimate burden of the tax typically falls on the end consumer, who doesn’t claim back GST.
If a business’s turnover lies beneath the threshold, each business would need to weigh up the advantages and disadvantages. Not registering does offer some perks:
- Ease & Lowered Admin Costs: No need for GST returns or such meticulous record-keeping.
- Competitive Pricing: Businesses not charging GST might have an edge over their GST-registered competitors, especially when selling to consumers who can’t claim back GST.
- Cash Flow Considerations: By sidestepping GST registration, you avoid acting as a tax intermediary.
Many of us might dream of living in a GST-free area, yet we also value the benefits of hospitals, schools, and essential medications. Regardless of your stance, managing GST can be straightforward and user-friendly. As a Xero-affiliated firm, we recommend it as just one efficient solution for managing your business and handling GST. At a reasonable rate of £30/month for the standard package, it offers immense value. For businesses not maintaining current records, transitioning to a cloud-based accounting system can revolutionize your financial management.