- Chancellor’s new measure is meant to cut tax and help out small businesses
- However many small firms want more assistance, such as a cut to VAT
The threshold at which businesses have to register for VAT has been raised to £90,000, as part of a package of measures announced in the Budget today.
The current threshold of £85,000 has faced criticism for putting unnecessary pressure and bureaucracy on small businesses.
The plan to raise the threshold for small businesses by £5,000 will ‘cut taxes and help them grow’, according to Chancellor Jeremy Hunt.
The Chancellor announced an uplift to the threshold at which businesses register for VAT
The VAT threshold has been a particular area of concern for SMEs, bringing more individuals and businesses into higher tax brackets.
But some business leaders think it doesn’t go far enough and there needs to be more support for struggling businesses.
What will raising the VAT threshold mean for businesses?
Ahead of the Budget, the Association of Chartered Certified Accountants (ACCA) said the ‘artificial barrier’ had capped profit and productivity for businesses and ultimately slowed UK growth.
From 1 April, companies earning less than £90,000 will no longer have to register for VAT, saving them a bureaucratic headache.
Some businesses have been forced to increase their prices to account for the extra tax burden, while others have actively avoided reaching the threshold.
The Federation of Small Businesses (FSB), which lobbied the Government to raise the threshold, said it had acted as a ‘straitjacket to firms eager to expand, because they end up tiptoeing around it to avoid extra costs.’
Extra bureaucracy with HMRC also means added costs on compliance and an average £4,100 spent on expenses like software or accountants, according to the lobby group.
The Treasury said: ‘The Government recognises that VAT can be a burden for some small businesses, and will therefore increase the VAT registration threshold to £90,000…
‘This will ensure that the UK continues to have one of the highest thresholds in the OECD. Over 28,000 businesses will benefit in 2024/5 from no longer being VAT registered.’
Hunt also announced another cut to self-employed National Insurance contributions. Class 4 NICs had been cut from 9 to 8 per cent in the Autumn Statement, which will fall to 6p from April.
> At a glance: What today’s Budget means for you and your finances
‘Cut-and-paste Budget’
The FSB welcomed the increase in the VAT threshold as well as the cut to self-employed NICs but warned that small businesses still face ‘serious challenges’.
‘Many will have understandably hoped that there would be more measures announced today that would help ease the tough decisions small employers are having to make day-in day-out to keep their businesses going,’ said the FSB’s policy chair Tina McKenzie.
The lobby group had been hoping for a rise in the turnover threshold to £100,000.
Owen Burn, VAT director at Evelyn Partners, also welcomed the move.
He said this will mean ‘that many existing businesses will not only be able to carry on trading but it will also help encourage a new generation of entrepreneurs to set up businesses’.
He added: ‘However, we also need to err on the side of caution in that some businesses may opt to manage turnover to remain under the threshold… It is therefore unclear what level of growth this marginal rise will deliver for small businesses as a whole, at or around the threshold.’
Others were hoping there would be more support for small businesses in the form of a cut to VAT.
The hospitality industry in particular has been calling for a lower rate of VAT to keep prices down and boost growth in the sector.
UK Hospitality boss Kate Nicholls said Hunt ‘missed a real opportunity to show that he backs hospitality… he had a chance to accelerate and unlock hospitality, but instead he has delivered a cut-and-paste Budget, maintaining the status quo which continues to act as a drag on recovery.’
