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VATCalc talks to Times Radio about UK VAT registration threshold issues

Over 20,000 businesses trapped at £85,000 registration threshold

Richard Asquith, our CEO, talked to Times Radio about the issue of thousands of UK micro-business curbing their growth to remain below the £85,000 VAT registration threshold.

As the inaugural guest at the Times’ new ‘Business Clinic’ section, Richard talked about the tax trap door that the UK’s high threshold has created, and how it’s discouraging small business taking on extra sales and staff.

Aside from policy options – including a separate threshold for services – the discussion moved to planning tips for businesses closing on the threshold.

VATCalc talks to Times Radio about UK VAT threshold tax trap

Alternatives policies to £85,000 VAT registration threshold

There are a number of potential policy alternatives to the existing threshold, which has been frozen since 2017:

  • Raise the threshold to give the business bunched below the threshold the space to grow. However, this would like just move the cliff further along. Aside from reducing the VAT tax base, it would also extend the tax advantage unregistered business have over those which are registered.
  • Lower the threshold to level the playing field for all, Since the EU average threshold is around £30,000 (pro rata for GDP), this would bring the UK into common neighbours’ levels. However, politically, this would be extremely hard to implement.
  • Only impose 20% on sales above £85,000 level. Aside from the difficulty of monitoring for all sides, it would create fraud opportunities.
  • Have a separate, higher threshold for service businesses which are at particular risk because they have no material input VAT to deduct against their tax bill.
  • For the first year over the threshold, businesses would only have to charge 20% VAT if they then over over, say, 50% again. So approximately £140,000 sales. Again, difficult the monitor.


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