VAT thresholds frozen until 2026

1 December 2022| CATEGORIES: Autumn Statement, VAT, VAT registration| TAGS: VAT registration threshold

In the Autumn Statement Chancellor Jeremy Hunt announced that the VAT registration and deregistration thresholds would be frozen for a further 2 years from April 2024. The current thesholds of £85,000 (VAT registration) and £83,000 (VAT deregistration) have now been in place since April 2017.

Downsides for small businesses

Historically the thresholds have increased each year in the Budget. Whilst this gives certainty, the fact that they have not increased in line with inflation has resulted in a steady increase in the number of businesses that are VAT registered.  More small businesses are therefore having to deal with the additional compliance burden and cost of registration.

Although VAT registration enables businesses to recover VAT on eligible costs, small businesses that supply consumer customers may find it difficult to increase prices to cover the full cost of the VAT due on their sales, and therefore take a hit to their profit margins.

Leaving the thresholds unchanged also hinders the growth of those small businesses that choose to manage their turnover in order to remain below the VAT registration threshold.

The VAT registration threshold in the UK is relatively high compared to many other countries but for businesses on the cusp of the threshold the impact of registration can be significant given the complexities of the system.