VAT Threshold Raised To Help Small Businesses In 2024

Announced in the spring budget and brought into effect from 1st April 2024, the VAT (Value Added Tax) registration threshold has been raised from £85,000 to £90,000. This represents the first rise in the VAT registration threshold since April 2017.

According to the Chancellor Jeremy Hunt, this measure was part of the government’s plan to ‘grow the economy and reward hard work’, but what does it mean for your small business?

What is the VAT registration threshold?

The VAT registration threshold refers to the point at which a business’ turnover is no longer exempt from VAT. Since the threshold was increased in April, small businesses turning over less than £90,000 per year are not required to register for VAT. All businesses above the £90,000 threshold are legally required to become VAT registered.

The UK’s VAT registration threshold is one of the highest in Europe and the joint highest in the OECD, but if it had increased with inflation over the last 7 years it would now be over £100,000.

Why has the government increased the VAT threshold?

According to the Treasury, increasing the VAT threshold by £5,000 will remove the VAT tax burden from 28,000 small businesses in the UK. Some small businesses deliberately sacrifice growth in order to stay below the VAT threshold, which means this increase allows those businesses to grow turnover by an additional £5,000 before having to register for VAT.

Note that the VAT deregistration threshold has also increased from £83,000 to £88,000. This means that if your small business crosses the VAT registration threshold of £90,000, you cannot deregister until your annual turnover has dropped below £88,000. Some reasons you might want to deregister include:

• Your business’ structure has changed, for example from sole trader to limited company
• You’re no longer offering VAT-taxable goods or services
• Your business has ceased trading
• You join a VAT group registration

What does this mean for your business?

If you’re already VAT registered then the threshold increase will only impact your business and your annual turnover is between £83,000 and £88,000, as you will now be permitted to deregister from VAT if you wish. If you were sacrificing some growth to avoid the £85,000 threshold, you can now also increase annual turnover up to £90,000.

However, it’s still possible for you to voluntarily register for VAT if you wish to do so. Whether this is the right thing for your business will depend on the goods and services you offer, the types of clients you have and which regions you operate in, but it might also be worthwhile for you to do so as you can claim back VAT on costs. This can help with your cash flow, particularly if you’re still a new business.

For example, a plumber starting out on their own as a sole trader will have to buy tools, a vehicle and other equipment, all of which will have VAT applied to their purchase. By registering for VAT the plumber could reclaim the VAT paid on these items.

It can also help your business to look more professional and more established.

However, note that if you do choose to voluntarily register for VAT you’ll also have to follow the Making Tax Digital rules, including using MTD-compliant VAT software to submit your yearly tax returns. If you don’t employ the services of accountants, you’ll have to be prepared to take on this additional tax admin.

How Warr & Co can help with VAT registration and deregistration

Do you need help assessing whether your business needs to (or should) become VAT registered? Failure to register within the required timeframe can lead to financial penalties, so if your annual turnover is approaching the new £90,000 threshold you need to be prepared.

Here at Warr & Co we have extensive experience and knowledge of the VAT environment, ensuring we’re best placed to help small businesses to achieve maximum VAT-efficiency. We pride ourselves on offering straight-forward advice so, even if you’re newly VAT registered and unsure of all the implications, we’ll make sure you’re clear on your obligations and allow you to focus on what you do best.

To find out more about how we can help your business navigate VAT, as well as our other bookkeeping services, get in touch with our expert team today.