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Token VAT threshold rise won’t benefit SMEs or HMRC


By raising the VAT registration threshold to £90,000 in the Spring Budget, the Chancellor has missed an opportunity to help small businesses and HMRC, writes Jason Croke.

6th Mar 2024
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In a somewhat surprising move, Jeremy Hunt used his latest Budget to increase the VAT registration threshold to £90,000 from 1 April 2024.

The VAT threshold has been at £85,000 since April 2017, and this has resulted in fiscal drag bringing in more businesses into the VAT regime by virtue of increased inflation, cost of living and minimum wage rises.

Why not go big?

It is good to see the VAT threshold increasing, but at the same time somewhat disappointing that the Chancellor was not more ambitious. There are many arguments for either lowering or increasing the threshold but if the decision has been made to increase the threshold, why not go big and move the threshold to say £100,000? A nice round figure which moves the cliff edge quite some distance for those smaller businesses that just creep over the £85,000 threshold but aren’t able to scale up sufficiently enough to justify a VAT registration.

An increase of £5,000 to the threshold might well benefit some smaller businesses but with inflationary costs seemingly unabating, I do wonder if such a small increase will remove the “tens of thousands of businesses” from the regime which the Chancellor stated during his speech.

Has this £5,000 increase resolved the cliff edge issue? Not really. Will it keep smaller traders out of the VAT system? Possibly. But then the cliff edge issue is that many businesses artificially keep their turnover below the VAT threshold. This stifles growth and long-term innovation, two aspects a struggling economy should want to focus on.

HMRC clearly struggling

It’s not just a fiscal decision to raise the VAT threshold to £100,000 or higher. HMRC is clearly struggling to perform at even the most basic of service levels. A higher VAT threshold could have taken out a large swath of businesses and reduced demand on HMRC.

Yes, fewer VAT registrations means less tax income for the Treasury, but it also means improved efficiency from HMRC and if the cost of collecting (and policing) a tax is greater than the tax collected, there is perhaps a pause required to consider what works best for a modern and dynamic economy.

Personally, I think this was a missed opportunity to help SMEs and HMRC. This token VAT threshold increase is unlikely to provide quite the benefit that the Chancellor thinks it will.

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Replies (16)

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By Rob Swan
06th Mar 2024 16:14

Agree completely Jason,

"A higher VAT threshold could have taken out a large swath of businesses and reduced demand on HMRC" - that's a good point.
I doubt very much that either the Chancellor or HMRC consider anything other than 'revenue' when preparing the budget. They show scand disregard for 'service'. I honestly believe the 'higher ups' in HMRC think (small) businesses and their accountants - the majority of HMRCs 'clients' are just a "bloody nuisance"!

Thanks (10)
By Branski
06th Mar 2024 16:59

Agree with that. Previous Budgets have ignored an increase to threshold so it is welcomed, but given inflation etc, £100k seemed much more sensible, and the admin for HMRC point is well made too, common sense, nah!

Thanks (6)
By Jenny Hill
06th Mar 2024 16:59

I can't find anything in respect of the deregistration threshold. Will this been increased from £83k?

Thanks (0)
Replying to Jenny Hill:
By Lorna15
06th Mar 2024 17:09

It will be £88K from 1 April.

Thanks (9)
By SteveHa
06th Mar 2024 17:11

Personally, I'd have been happier to see a much reduced threshold, and a reduction in the VAT rate. That would have enabled more smaller businesses to reclaim input tax, whilst reducing costs across the board for end consumers, and would not have likely cost the exchequer anything (and in fact would have likely increased the overall tax take), but hey, ho.

Let's face it, unregistered businesses don't, as a rule, discount their net costs to beat VAT registered, so what the hell.

Thanks (5)
By norstar
06th Mar 2024 17:45

"the Chancellor has missed an opportunity to help small businesses and HMRC, writes Jason Croke"

Jason, it's extremely obvious that the Chancellor and his master, RightHon Sunak, have no intention of helping small businesses. In fact, their policy decisions and budget announcements since COVID reinforce my belief that they hold us in contempt and suspicion.

The system increasingly appears to disproportionately milk us for taxes compared to the relative safety of the employed person. They have no concept of the risk, effort and angst that a small business owner endures to generate the money which they gleefully raid.

And that's without being political about it.

Thanks (13)
By Husbandofstinky
06th Mar 2024 17:59

A nice and simple £100k would've been too obvious.

As pointed out in your article, there are many other indirect considerations to consider, especially for HMRC.

A pragmatic solution (in part) that has gone amiss

Thanks (5)
By agknight
06th Mar 2024 20:31

Jason is pretty well spot on. This Chancellor and Government are not bold enough to make any statements.

As I understood it the threshold was frozen to take a step back and look at it and whether it could be tinkered with. We waited several years. Nothing. Then this, which i'm sure does not even restore the threshold to an inflationary increase (over its frozen years).

There's an argument for rocket boosting the threshold, or lowering and stepping it.

I have mutiple clients being squeezed by the threshold, high interest rates and elevated energy prices. This Tory government is stifling budding entrepreneurs.

Thanks (4)
Ruth Corkin
By Ruth Corkin
06th Mar 2024 23:02

In 2017 about 44% of the VAT register related to businesses trading under the threshold. I doubt that has changed and the Chancellor has missed the fact that the Government proposal to add VAT to the tax compliance for licencing trades such as taxi drivers will force more to register under the threshold anyway. Add to that sectors such as delivery drivers being forced to register by the big players very few will benefit. I guess the ones that will can go on longer cruises or afford a longer shutdown to avoid registration in the first place. I doubt that it will reduce HMRC's workload either!

Thanks (3)
By philaccountant
07th Mar 2024 09:38

"This token VAT threshold increase is unlikely to provide quite the benefit that the Chancellor thinks it will."

Tip for interpreting any chancellor's budget:
Never take anything a chancellor says are their goals to be their actual goals.

Thanks (3)
By johnjenkins
07th Mar 2024 09:51

I have said this many times. All business should be vat registered with no actually money changing hands between them. Then only Joe public will pay cos that is what VAT is all about.

Thanks (3)
By LW64
07th Mar 2024 10:15

Under the Northern Ireland protocol and the Windsor Framework the EU Vat threshold of €100,000 applies to NI.
The chancellor would have to diverge NI VAT from the rest of the UK to increase the threshold any more.

Thanks (1)
Replying to LW64:
JD Portrait
By John Downes
07th Mar 2024 10:38

I don't recognise that €100k 'EU VAT Registration threshold'.
Typical registration thresholds in the EU are a lot lower than that, and set out here;

Thanks (0)
Replying to John Downes:
By LW64
07th Mar 2024 11:35

We currently have the highest exemption level v EU.
Effective 1/1/25 EU will allow small business to be exempt with gross receipts up to €85,000. (But I'm sure you already know that).
There are rules I am not going hunting for now about inflationary annual rises but we already have thresholds above the rest of EU.
Without divergence NI would be a problem.

Thanks (2)
Replying to LW64:
By Open all hours
07th Mar 2024 19:12

The EU really is Hotel California.

Thanks (0)
Replying to Open all hours:
By Rob Swan
08th Mar 2024 02:51

Quite possibly ;)
"We haven't had that spirit here since 1969"
(Actually 1972, but that just wouldn't sound right!)

Thanks (1)