VAT Threshold increase to £90,000 from 01 April 2024

The VAT threshold will increase to £90,000 from 01st April 2024.  In the last few years, the VAT threshold has not moved beyond the £85,000 threshold at each budget, and this has often meant fiscal drag bringing in more businesses into the VAT regime by virtue of increased inflation, cost of living and minimum wage rises.

It is good to see the VAT threshold increasing, but it is somewhat disappointing that it 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 which is a nice round figure and moves the cliff edge quite some distance for those smaller businesses which just creep over the £85,000 threshold but aren’t able to scale up the business sufficiently enough to justify a Vat registration.

Who will benefit from the VAT threshold increase

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 £5k 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 keep their turnover below the VAT threshold, this stifles growth and long-term innovation, two aspects a struggling economy would want to focus on.

It’s not just a fiscal decision to raise the VAT threshold to £100,000 or higher.  HMRC are clearly struggling to perform even the most basic of service levels.  A higher Vat threshold could have taken out a large swath of businesses and reducing the demand on HMRC.  Yes, fewer VAT registrations means less tax income for 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.

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For further information on VAT and tax matters, or filing submissions to HMRC, get in touch with our VAT experts, who can advise you and help with all VAT matters, ensuring you remain compliant and in line with all legislative changes.

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