VAT threshold in the spotlight ahead of November Autumn Budget
As is often the case in the run-up to a Government Budget statement, speculation is rife about what may be unveiled. With the Government now delivering only one major fiscal address per year, the rumour mill has had even more time to build momentum.
This year, VAT – a tax area that usually avoids headline-grabbing overhauls – is at the centre of much of the discussion. In particular, attention is focused on the VAT registration threshold, which was raised from £85,000 to £90,000 in the 2024 Spring Budget.
The current threshold
Businesses must register for VAT once their taxable turnover exceeds £90,000 in a 12-month rolling period. This threshold has long been seen as a balancing act: set too low, and it risks creating an administrative burden for microbusinesses; set too high, and it could narrow the tax base.
The conflicting rumours
Reports are pointing in two starkly different directions. Some commentators expect the Chancellor to continue the upward trend, raising the threshold to £100,000, which would ease the compliance burden for many small enterprises.
In contrast, there have also been rumours that the Chancellor is considering slashing the threshold dramatically to £30,000. Such a move would pull thousands more small businesses into the VAT net, significantly increasing administrative demands and altering pricing dynamics for sole traders and microbusinesses.
This debate also comes at a time when many smaller businesses are preparing for new compliance requirements under Making Tax Digital (MTD) for Income Tax, due to begin in April next year. For those already managing the transition to digital record-keeping and quarterly reporting, the prospect of additional VAT obligations could feel particularly burdensome. Against this backdrop, the Government will need to tread carefully before introducing further compliance pressures on the smallest businesses.
Potential impact of either change
Raising the threshold:
- Could relieve thousands of small businesses from the need to register.
- May encourage growth among firms currently hovering just below the limit to avoid VAT obligations.
- Could, however, reduce Government revenues at a time of fiscal pressure.
Lowering the threshold:
- Would broaden the VAT base substantially, pulling in many sole traders, start-ups, and side-hustles.
- Could create a cash-flow and compliance challenge for the smallest businesses.
- Might discourage some individuals from operating formally or increase pressure on pricing structures.
When to act
Speculation is inevitable, but it comes with risk. Acting on rumours – whether by accelerating or deferring business decisions – can lead to unintended consequences. Until official announcements are made in the Autumn Budget, which is scheduled for 26 November 2025, the most prudent course is to plan based on the current rules while remaining prepared to adapt.
We’re here to help
Budget changes can be difficult to navigate, especially when they affect thresholds as fundamental as VAT. Whether you’re looking to understand the potential impact of reforms, model different scenarios, or prepare for compliance obligations, our team is ready to support you with practical, timely advice. Get in touch via the form below.
