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VAT Registration Threshold Frozen

January 2018

David Fiddy of Aston ShawOur VAT Consultant explains why the VAT registration freeze may not be good news for everyone.

Prior to the Autumn 2017 Budget, it was anticipated that the VAT registration threshold would be lowered. Surprisingly though, it wasn’t. Instead, it was frozen for “at least” the next two years. While this appears to be good news, some fear it could lead to problems later down the line.

Ahead of the Budget on 22nd November 2017, the Office of Tax Simplification conducted a review and made a series of recommendations as a result. One of these recommendations was to potentially lower the compulsory VAT registration threshold, with some sources suggesting that it could be reduced to as low as £26,000. When you consider that the current threshold is £85,000, the proposed change was a significant one. The reason for the lowering of the threshold was that it had the potential to raise a great deal of tax revenue.

When Budget day finally arrived after months of speculation, the announcement that many expected – and dreaded – never came. Instead, we were told that there would be no lowering at all and that there would actually be a freeze for at least the next two years. The threshold will remain at £85,000, and deregistration will remain at £83,000 until at least 1st April 2020.

The Government stated that this freeze will be in effect whilst they consider and consult on the long-term position. While at first glance this is good news, HMRC predicts that 33,000 more businesses will be required to register for VAT as a result. This presents significant problems for those trading at just below the threshold who wish to increase prices in line with inflation. Such businesses may well want to avoid having to register because they won’t want to lose custom by adding 20% onto their sales prices, compared with their smaller competitors.

If your business falls into the above category, you’re probably wondering what the solution is. The good news is, there are solutions out there for those that find themselves in this situation, but it is important to plan ahead before the VAT registration is lowered. Once you are required to register for VAT on a compulsory basis, it is far more difficult to avoid charging your customers that extra 20% VAT.

If your business is trading just below the threshold and you want to better understand your options, do not hesitate to get in touch and we will do our best to provide you with a solution. You can reach me by emailing or by calling our Norwich office on 01603 616300.

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