Small businesses appear after the Ministry of Finance is considering a major change after cutting the VAT registration threshold from £90,000 to just £30,000.
The move, reportedly under review ahead of the Nov. 26 budget, will bring thousands of sole merchants and small companies into the VAT system for the first time, forcing them to charge customers more and deal with other traditional tape festivals.
The change is under review as part of the additional revenue for Prime Minister Rachel Reeves after a budget liability warning, which is the UK’s productivity outlook to be downgraded. The cut could provide billions of dollars to the Treasury by expanding its tax network, but critics warn that it could be at risk from independent businesses squeezed by high inflation, weak consumer demand and rising borrowing costs.
Analysts say small businessmen (such as electricians, builders, hairdressers and consultants) will feel the measure most keenly, many of whom deliberately lower their turnover to below the current £90,000 threshold to avoid signing up. Reducing the bar to £30,000 will make this option much less, increasing the price for customers and increasing the paperwork burden.
Business groups have previously described this move as a “ambition tax” that discourages growth. The consortium of small businesses has long believed that a sharp drop in the threshold would put fleeing companies into “VAT limbo”, where they have to pass higher costs but struggle to compete with unregistered competitors.
Although the Treasury declined to comment on “speculation” before the budget, insiders said the option is moving alongside other tax withdrawal ideas, including a freeze on the widening income tax threshold, taxes on pensions and even new tariffs on sugar-heart snacks.
If Reeves keeps moving forward, it will represent one of the most important VAT in decades, which could reshape the landscape of 5.5 million small businesses in the UK.
