Increasing the VAT registration threshold
Published 7 March 2024
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Who is likely to be affected
Small businesses who make taxable supplies or, in Northern Ireland, EU acquisitions between £85,000 and £90,000.
General description of the measure
The VAT registration and deregistration thresholds will increase from 1 April 2024.
The 12-month taxable turnover threshold which determines whether a person must be registered for VAT will increase from £85,000 to £90,000.
The 12-month taxable turnover threshold which determines whether a person may apply for deregistration will increase from £83,000 to £88,000.
For Northern Ireland, the registration and deregistration thresholds for acquisitions will increase from £85,000 to £90,000.
This measure was announced at Spring Budget 2024.
Policy objective
This measure will support businesses with the administrative and financial impact of VAT charges.
At £90,000, the UK’s VAT registration threshold is higher than any EU Member State and the highest threshold in the Organisation for Economic Cooperation and Development (OECD) alongside Switzerland, and more than double their averages. This keeps the majority of businesses out of VAT altogether. Any businesses with turnover of £90,000 or less do not have to register for VAT.
Background to the measure
The UK’s VAT registration threshold (above which persons making taxable supplies are required to register and account for VAT) will be set at £90,000 per annum, although businesses can opt to register voluntarily if their taxable turnover is below this.
The deregistration threshold for taxable supplies will be set at £88,000 and is lower than the registration threshold to avoid businesses trading around the threshold level having constantly to register and deregister.
The threshold for acquisitions in Northern Ireland will rise to £90,000 for both registration and deregistration.
The UK had a higher VAT registration threshold than any EU Member State and the second highest in the OECD following Switzerland. This measure will result in the UK having the highest threshold in the OECD alongside Switzerland. The threshold value is now more than double the EU and OECD average (around £44,000 and £34,700 respectively). It keeps an estimated 3.2 million small UK businesses out of VAT.
Detailed proposal
Operative date
The changes to both the registration and deregistration thresholds will take effect from 1 April 2024.
Current law
Current law is included in Schedule 1 and Schedule 9ZA of the Value Added Tax Act 1994.
Proposed revisions
References to the appropriate thresholds in Schedule 1 and Schedule 9ZA to the Value Added Tax Act 1994 will be updated by statutory instrument, as follows:
In Schedule 1 (Registration in respect of taxable supplies: UK establishment), references to the registration threshold will be amended from £85,000 to £90,000, and references to the deregistration threshold will be amended from £83,000 to £88,000.
In Schedule 9ZA (Supplies by persons belonging in other Member States), references to acquisition values will be amended from £85,000 to £90,000.
Legislation will take effect from 1 April 2024 and be published on 7 March 2024.
Summary of impacts
Exchequer impact (£million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| — | -150 | -185 | -125 | -50 | +65 |
These figures are set out in Table 5.1 of Spring Budget 2024 and have been certified by the Office for Spring Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2024.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects businesses. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be a disproportionate impact on those in groups sharing protected characteristics. Additional support will be provided for customers who require help to register or deregister.
Impact on business including civil society organisations
This measure will affect VAT registered businesses whose turnover is between £85,000 and £88,000 and may now wish to deregister. It will also remove the obligation to register for those who are currently unregistered and are operating with a turnover between £85,000 and £90,000.
The impacts will be significant as it is estimated that the overall administrative burden will fall by £5million per year. It is expected that 28,000 fewer micro businesses will need to be VAT registered in 2024 to 2025, and 14,000 fewer on average from 2024 to 2025 to 2028 to 2029. The latter figure represents around 0.6% of businesses currently on the register. This will add simplification for those who can now reduce the administrative burden of completing and filing tax returns. There will be a negligible one-off cost which includes familiarisation with the new rules. There are no other changes to how businesses will apply their obligations or options when considering registration or deregistration.
This measure is not expected to impact civil society organisations.
Estimated continuing impact on administrative burden (£million)
| Continuing average annual impact | (£million) |
|---|---|
| Costs | — |
| Savings | 5 |
| Net impact on annual administrative burden | -5 |
This measure is expected overall to have no impact on businesses’ experience of dealing with HMRC as the updated values do not change any processes or tax administration obligations.
Operational impact (£million) (HMRC or other)
HM Revenue and Customs will incur minimal extra costs supporting customers to adjust to this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from tax returns and receipts.
Further advice
If you have any questions about this change, contact Anne Hurst on Telephone: 03000 540845 or email: anne.hurst@hmrc.gov.uk.
Declaration
Nigel Huddleston MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.