In a bid to support small business and sole traders, the Chancellor has increased the current £85,000 VAT threshold to £90,000
The £90,000 threshold will come in from 1 April, the first increase since 2017, although at £5,000 it is not likely to shift the dial.
The move is designed to support businesses and sole traders which often put off growth due to the VAT compliance costs.
Chancellor Jeremy Hunt said: ‘We should reward smaller businesses who make a big impact on our society and employ millions of people.
‘That’s why from April 1, we’re increasing the VAT registration threshold from £85,000 to £90,000 - cutting taxes for small businesses across the UK.’
Over 28,000 businesses will benefit in 2024-25 from no longer being VAT registered, the Treasury said.
The measure is set to cost £150m in 2024-25, rising to £185m in 2025-26.
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Michelle Dale, VAT director at UHY Hacker Young, said: ‘The government should have been more generous in the increase in the VAT threshold.
‘Raising the threshold will encourage growth for the businesses that teeter over around the threshold without going over it. Many small businesses are thought to avoid growing their turnover so that they don’t have to bother with the complexity of VAT.
‘This is somewhat of a missed opportunity to achieve better growth. Raising the threshold more aggressively would have encouraged more growth amongst small businesses.’
This view was echoed by Gerry Myton, head of indirect tax at HW Fisher. ‘The increase in the VAT registration threshold from £85,000 to £90,000 only moves the glass ceiling to growth but it does not encourage businesses trading around the threshold to grow further,’ he said.
‘Reducing the threshold and the rate of VAT to say 19% while introducing point of sale pricing net of VAT would create a level playing field and ensure VAT rate changes are passed to consumers.’
