VAT Registration Threshold increase from 1 April 2024

vat registration threshold increase 2024

The 2024 spring budget announcement included a change to the VAT registration threshold for businesses.

It has been increased to £90,000 which is an adjustment of £5,000 from the previous VAT registration threshold of £85,000.

Effective from 1st April 2024 the Chancellor’s recent announcement marks the first VAT registration increase in seven years and aims to provide support to small and medium enterprises (SMEs).

The effects are expected to be substantial for some with an estimated reduction in the overall administrative load by £5 million annually.

Anticipated outcomes include a decrease of 28,000 micro businesses needing to register for VAT in the period from 2024 to 2025, as well as an average decrease of 14,000 businesses from the 2024/2025 tax year up to 2028/2029.

The previous VAT registration threshold drew criticism for placing unnecessary burden and administrative complexities on small businesses.

This adjustment aims to alleviate these concerns and support the growth of small businesses by reducing taxes.

The chancellor of the exchequer Mr Hunt claimed:

“This will bring tens of thousands of businesses out of paying VAT altogether and encourage many more to invest and grow”

VAT deregistration threshold increases from April 2024

In the same spring budget the threshold for taxable turnover which determines eligibility for VAT deregistration will rise from £83,000 to £88,000 over a twelve month period.

The threshold for VAT deregistration on taxable supplies will be set at £88,000, intentionally lower than the registration threshold.

This is done to prevent businesses from constantly registering and deregistering from VAT when trading near the VAT threshold level.

UK VAT threshold in comparison 

From April 2024 the VAT registration threshold in the UK is £90,000 which is higher than any other EU Member State and also the highest among countries in the Organisation for Economic Cooperation and Development (OECD) and is currently more than double their average thresholds.

As a result the UK’s current VAT threshold effectively exempts the majority of businesses (estimated to be around 3.2 million) from having to register for VAT.

Is the 2024 VAT threshold increase enough?

It has been recognised that the VAT threshold can actively hinder business growth, as businesses strive to stay below it in order to avoid VAT payments and the subsequent impact on their expansion.

Increasing the VAT threshold to £90,000 will provide businesses with a greater opportunity to grow and thrive but is it enough?

Senga Prior, Chair of the ATT Technical Steering Group, said:

“While today’s announcement may give businesses approaching the threshold a small amount of headroom, it doesn’t address the root causes which make businesses reluctant to cross it in the first place.

“A key cause is fear of being undercut by non-VAT registered competitors, who don’t have to worry about either increasing their prices or somehow absorbing the VAT into their profit margins.

“The relatively high level of the threshold means that many small businesses can earn sufficient income to support themselves without going over it. In order to avoid the costs and administrative burdens of becoming VAT registered, they may therefore choose to keep their turnover below the threshold. This is reflected in the bunching of businesses just below the registration threshold.

“If we don’t address these underlying issues, then increasing the VAT threshold is merely moving the goalposts, and we can expect to see a bunching of businesses just below the new higher £90,000 threshold.”

Some have suggested that a greater increase to the VAT threshold to around £100,000 or more would bring a far greater benefit to SME’s and even reduce HMRC’s workload (and costs) at the same time.

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