UK - Change in VAT Thresholds

The Spring Budget 2024 Policy Paper (the Spring Budget) announced a measure to increase VAT registration and deregistration thresholds. Following the commitment to support small businesses announced in the Autumn Statement 2023, the Spring Budget 2024 further supports SMEs by increasing VAT registration to cut their taxes and help them grow. 

Novelties related to registration and deregistration thresholds became effective on April 1, 2024. 

The UK, following Switzerland, has the second-highest VAT registration threshold in the OECD. This change should significantly expand the scope of the VAT-exempt SMEs that could leverage this scheme.

Analysis of the Measure

Following the proposal, economic operators can opt to be VAT registered voluntarily even if their taxable turnover for the last 12 months is below the threshold of GBP 90,000. However, once this threshold is crossed, businesses making taxable supplies should register and account for VAT.

To prevent businesses that trade at the threshold level from continually needing to register and deregister, the deregistration threshold for taxable supply will be set at GBP 88,000, which is lower than the registration threshold. 

Impact on the Businesses

This change will impact VAT-registered businesses with turnovers between GBP 85,000 and GBP 88,000, as they may now opt to deregister. It will also lift the registration requirement for unregistered businesses operating with turnovers between GBP 85,000 and GBP 90,000.

The expected outcomes are considerable, with a projected annual reduction in administrative costs by £5 million. About 28,000 fewer micro businesses will need VAT registration in 2024-2025, and the average will drop by 14,000 from 2024-2025 to 2028-2029, equating to approximately 0.6% of current VAT-registered businesses. 

Conclusion

This simplification will lessen the administrative load of tax filings for many businesses. 

Source: HMRC Policy Paper - Increasing the VAT registration threshold, Spring Budget 2024