Continued freezing of UK VAT registration threshold at £85,000 until April 2026 draws in 16,700 small businesses into tax net
Today’s UK Autumn Statement (budget) will extend the VAT threshold at £85,000 for a further two years until at least April 2026. This means the sales threshold above which small businesses must register with HMRC for VAT and start adding the 20% standard rate has been unchanged since 2018.
This measure will raise over £300m per annum and rising, meaning approximately 16,700 small business will become taxpayers directly because of this measure. This extra tax revenue will help cover the estimated £54 billion hole in the public finances.
As inflation soars above 10% this year, that means thousands of micro-businesses will face a major tax-induced price rise which they will have to consider passing onto their customers.
The UK’s VAT registration threshold (above which persons making taxable supplies are required to register and account for VAT) is currently set at £85,000, although businesses can opt to register voluntarily if their taxable turnover is below this.
The deregistration threshold for taxable supplies, currently £83,000, is set lower than the registration threshold to avoid businesses trading around the threshold level having constantly to register and deregister.
The UK has the highest registration threshold when compared to members of the EU and OECD. It keeps an estimated 3.6 million small businesses out of VAT. The average thresholds in the EU and the Organisation for Economic Co-operation and Development (OECD) countries are, respectively, around £28,000 (€31,000) and c£35,000 ($49,000).
We track European VAT registration and Intrastat thresholds.
A previous measure to maintain the current registration and deregistration thresholds until March 2022 was announced at Budget 2018.
The OTS report published on 7 November 2017 recognised the distortions the threshold causes and recommended the government should review this whilst also acknowledging that a higher threshold could simply move the point at which the distortion takes place.