Your Budget: The Small Business Forum has said the government must increase the threshold applying for VAT registration if growth in the black economy is to be avoided.

In its first pre-Budget submission, the forum recommended that VAT thresholds be revised to €70,000 for goods and €35,000 for services and estimates. This would remove an additional 10,239 business from the VAT net, reducing compliance costs and eliminating an important barrier to entry, the submission said. The forum estimates that its proposal will cost the exchequer €66 million next year.

According to the submission, a change in the thresholds was long overdue. "There was a pattern of re-evaluating the appropriateness of these thresholds approximately every five years, with changes being made in 1978, 1981, 1982, 1989 and 1994. However, aside from a restatement of the thresholds in 2001 following the introduction of the euro, they have not been revised since 1994," the submission said.

Thresholds in Ireland are considerably lower than in the UK, according to the submission. "The current thresholds at which companies are liable to pay VAT are: €51,000 for traders in goods and €25,500 for traders in services. In the UK, the VAT threshold is set at €90,000 for both goods and services."

The submission said that legitimate traders could be undermined as small business opted to operate in the black economy to avoid paying VAT.

The Small Business Forum was established last July and is chaired by managing director of Microsoft Ireland Joe Macri.

Do you think Brian Cowen will get it right on Budget day?

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