VAT threshold - impacts on freelancer co-operation?

Also, I don't feel we should go down the "there shouldn't be any advantage to being a co-op as then everyone will start one" road.

I'll bow to your judgement on what's spurious ;)

Two of the people would never have been sole traders. But I've increased the VAT threshold for the business from £85k to £255k.

Good point :)

My night's thinking on this is: there are already lots of tax loopholes around people making their husbands partners in their businesses in order to share the tax allowance, etc. and they're quite difficult to enforce.

If you made the shared VAT threshold pro-rata (e.g. full time workers get a full VAT share) then you'd have to declare how many hours each person worked - you could even be required to keep rudimentary timesheets/receipts for days worked. That would make it much more difficult to scam as anyone would be vulnerable to charges of fraud if they declared themselves to be working when they were actually doing something else.

In other words, it would be a lot easier to close this loophole that others.

Also, all VAT should be abolished and replaced with progressive taxation, but that's another story.

Thank you all really useful. @nathanbrown Don't some VAT costs of co-operation still arise even when the clients pay the freelancers direct, if the combined revenues the co-op receives in membership fees/commissions in a year goes over the threshold?

A workable proposition that really guards against tax avoidance would be a tough nut to crack.

Yes, that would be the case. And if the freelancer members are invoiced by the co-op for services they would also be paying VAT which may be non-reclaimable, (unless they are individually over the threshold and registered).

In practice, marketing co-operatives rarely reach the £85k VAT threshold unless they are very large (in which case they should be paying VAT). I've just set up a marketing co-operative for 40 freelancers in Scotland. The co-operative's turnover will be around £20k. Growing to a scale where VAT would be an issue was so unimaginable, it was never even discussed as an issue.

Thanks Dave. That's a really useful insight into scale in relation to the threshold.

Dave, even if this is perhaps hypothetical considering the scale point, can I clarify that in your view, there isn't a good rationale for a marketing co-op with £85k> income being treated differently? Not even if all that income came from the freelancers who owned the co-op (fully mutual) and all surpluses/losses in the co-op were distributed back to the freelancers through prices/rebates (Mutual Trading Status)?

I'm not an accountant but here goes. As I understand it, VAT is tax on the value added on taxable goods and services. VAT applies to specific goods and services (which can be full rated, zero rated or exempt) no matter what sort of organisation delivers or buys them. There are no VAT exemptions applying to an entire class of business. There are a few VAT exemptions for specific activities by charities (for example building works) but again this is on a specific good or service. So I suspect that any attempt to exempt a class of businesses from VAT would mean a fundamental re-write of UK tax law. This may be a tricky ask.