VAT threshold faces review

VAT threshold faces review

The chancellor has announced a review of the VAT registration threshold.

During his Budget speech today (22 November) Philip Hammond said he was "not minded" to make any changes to the level of the threshold but would explore how it could be improved.

The UK's VAT threshold is currently £85,000, making it the highest in the group of developed countries which form part of the Organisation for Economic Co-operation and Development and the highest in the European Union.

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Germany's threshold is currently £15,600 and a recent report by the Office for Tax Simplification said there was evidence the high level of the threshold is having a distortionary impact on business growth and activity.

Mr Hammond said: "I note the OTS conclusion that it distorts competition and disincentivises business growth. I also note the Federation of Small Businesses’ concerns about the cliff edge of the threshold.

"But such a high threshold also has the benefit of keeping the majority of small businesses out of VAT altogether. So I am not minded to reduce the threshold.

"But I will consult on whether its design could better incentivise growth."

In the meantime Mr Hammond said the threshold would be kept at £85,000 for the next two years.

The OTS report, published earlier this month, set out the impacts of various options such as raising, freezing or lowering the threshold.

It recommended that the government examined the current approach to the level and design of the VAT registration threshold to set out a future direction of travel.

The OTS also recommended consideration of the potential benefits of a smoothing mechanism.