UK VAT threshold frozen 2018/19

Wed 22nd Nov 2017

The UK Chancellor, Phillip Hammond, today announced in the Autumn Budget that the UK VAT registration threshold will be frozen at £85,000 for the tax years 2018/19 and 2019/20.

The freeze will raise approximately £26 million each year.

UK highest VAT registration threshold in EU

The UK’s current VAT registration threshold of £85,000 per annum is the highest in the EU. The nearest other countries are France €82,000 (£73,000) and Ireland €75,000 (£67,000) on goods.  The official basis for the high UK threshold is to give small companies a tax subsidy to help them grow. However, the more pragmatic reason is the negative cost/benefit in attempting to enforce compliance on small, difficult to track businesses.

Earlier this month, the UK’s Office for Tax Simplification (ONS) reported that such a high level was distorting the growth of small enterprises. Many micro businesses were noted to restrict growth to stay below the threshold and avoid having to raise their prices by charging VAT.  There is also evidence of tax evasion in the system as businesses illegally ‘split’ sales between companies to remain below the registration threshold.

The ONS recommended significantly reducing the threshold. Cutting it from £85,000 to £43,000 would bring up to 600,000 businesses into the VAT net.  This would force new VAT registration and return administrative burdens on micro-businesses – including keeping digital records under the government’s 2019 Making Tax Digital proposals.

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