How might the VAT threshold change?

VAT threshold cliff edge


Jun 07, 2018



The government has just closed its consultation on whether the UK VAT registration threshold should be amended.   As mentioned in our Spring Statement summary, the Office of Tax Simplification recently highlighted concerns that some small businesses are deliberately operating below the VAT threshold and capping their turnover below the current £85,000 limit.

This is largely because as soon as your business nudges above the threshold in a cumulative 12 month period, you’re required to register for VAT.  And following registration, you either have to add 20% to the price of goods and services you sell to the public or you have to absorb it as a cost.  Plus, there’s an awful lot of admin associated with being VAT registered – regular recording of transactions, quarterly returns to HMRC, not to mention the upcoming plans for Making Tax Digital.


Reducing the effect of the VAT threshold

In his Autumn Budget 2017 the Chancellor announced that the government had no plans to reduce the VAT threshold.  Instead, alternative options have been proposed by HMRC to remove this barrier to growth.   The alternatives are designed to smooth the so-called ‘cliff-edge effect’ which occurs when your business reaches the threshold.

Some of the options included in the recent consultation include:

  • Businesses can exceed the threshold by 50% for up to 12 months without needing to register for VAT. If you still exceed the threshold after 12 months, you’ll need to register at this point instead.
  • The first VAT period is extended from 3 months to 6 months
  • The threshold test for your business turnover is applied over two years rather than a single year

The suggestion of a 12 month grace period is very sensible, and we’re hopeful that this policy will be implemented.   If you’re currently hovering just below the threshold it means you’ll be able to accept extra work and take time to assess its impact and what changes you then need to make, in order to be ready for potential VAT registration.

The UK’s current VAT threshold, which is the highest of any country in the EU, will remain until March 2020 when there may then be the opportunity for change.


How might the VAT threshold change?
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How might the VAT threshold change?
The current VAT threshold is considered a barrier to growth for small businesses, and alternative options are being considered to smooth its 'cliff-edge' effect.
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Paish Tooth
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