Home Money VAT threshold raised to £90,000 in the Budget – but small businesses call for more support

VAT threshold raised to £90,000 in the Budget – but small businesses call for more support

by Elijah
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The Chancellor announced an increase in the registration threshold for companies for VAT
  • Chancellor’s new measure aims to cut taxes and help small businesses
  • However, many small businesses want more help, such as a VAT cut.

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The threshold at which businesses must register for VAT has been raised to £90,000, as part of a package of measures announced in the Budget today.

The current threshold of £85,000 has been criticized for putting unnecessary pressure and bureaucracy on small businesses.

The plan to increase the threshold for small businesses by £5,000 will “reduce taxes and help them grow”, according to Chancellor Jeremy Hunt.

The Chancellor announced an increase in the registration threshold for companies for VAT

The Chancellor announced an increase in the registration threshold for companies for VAT

The VAT threshold has been an area of ​​particular concern for SMEs, as it has placed more people and businesses into higher tax brackets.

But some business leaders believe it is not enough and that more support is needed for struggling businesses.

What will raising the VAT threshold mean for businesses?

Ahead of the Budget, the Association of Chartered Accountants (ACCA) said the “artificial barrier” had limited businesses’ profits and productivity and ultimately held back UK growth.

From April 1, businesses earning less than £90,000 will no longer have to register for VAT, saving them a bureaucratic headache.

Some companies have been forced to increase their prices to account for the additional tax burden, while others have actively avoided reaching the threshold.

The Federation of Small Businesses (FSB), which lobbied the Government to raise the threshold, said it had acted as a “straitjacket for businesses keen to expand, because they end up tiptoeing around it to avoid extra costs”.

Extra bureaucracy with HMRC also means extra compliance costs and an average of £4,100 spent on expenses such as software or accountants, according to the lobby group.

The Treasury said: “The Government recognizes that VAT can be a burden on some small businesses and will therefore increase the VAT registration threshold to £90,000…

‘This will ensure that the UK continues to have one of the highest thresholds in the OECD. More than 28,000 businesses will benefit in 2024/5 by no longer being VAT registered.’

Hunt also announced another cut to National Insurance contributions for the self-employed. Class 4 NICs were reduced from 9 per cent to 8 per cent in the Autumn Statement, which will fall to 6p from April.

> At a glance: What today’s Budget means for you and your finances

‘Cut and paste budget’

The FSB welcomed the increase in the VAT threshold, as well as the cut to self-employed NICs, but warned that small businesses still face “serious challenges”.

“Many would have understandably expected more measures to be announced today that would help alleviate the difficult decisions that small employers have to make day in and day out to keep their businesses going,” FSB policy chair Tina McKenzie said.

The lobby group had hoped for an increase in the turnover threshold to £100,000.

money item html_snippet module" data-channel-color="money"> David Fishwick

Owen Burn, VAT director at Evelyn Partners, also welcomed the move.

He said this will mean “that many existing businesses will not only be able to continue trading but will also help encourage a new generation of entrepreneurs to set up business”.

He added: “However, we should also err on the side of caution in that some companies may choose to manage turnover to stay below the threshold… It is therefore unclear what level of growth this increase will generate marginal for small businesses as a whole. , on or around the threshold.’

Others hoped there would be more support for small businesses in the form of a VAT cut.

The hospitality industry in particular has been calling for a lower VAT rate to keep prices low and drive growth in the sector.

UK hospitality chief Kate Nicholls said Hunt “missed a real opportunity to show he stands behind hospitality… he had the chance to accelerate and unlock hospitality, but instead he delivered a ‘short’ budget. and it hits, maintaining the status quo that continues to act as a drag on recovery.’

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