Policy paper

VAT registration threshold

Published 8 March 2017

Who is likely to be affected

Small businesses currently outside the VAT regime, who make taxable supplies or EU acquisitions between £83,000 and £85,000.

Small businesses registered for VAT, who make taxable supplies below £83,000 or EU acquisitions below £85,000.

General description of the measure

The measure will:

  • increase the registration and deregistration thresholds for VAT, in line with inflation
  • increase the registration and deregistration threshold for EU acquisitions, in line with the VAT registration threshold

The measure was announced at Spring Budget 2017.

Policy objective

The UK’s VAT registration threshold (above which persons making taxable supplies are required to register and account for VAT) is currently set at £83,000 and is the highest in the EU. Those trading below the threshold can choose to register voluntarily. The deregistration threshold for taxable supplies is currently £81,000. It is set lower than the registration threshold to avoid businesses trading around the threshold level having to frequently register and deregister.

Revalorisation of the threshold will prevent around 4,000 small businesses from having to register for VAT by the end of the 2017 to 2018 financial year.

Background to the measure

Typically, the VAT registration and deregistration thresholds have been revalorised annually in line with inflation using the Retail Price Index (RPI).

Detailed proposal

Operative date

The changes to the thresholds will have effect from 1 April 2017.

Current law

Current law is included in Schedules 1 and 3 of the Value Added Tax Act 1994.

Proposed revisions

References to the appropriate thresholds in Schedules 1 and 3 of the Value Added Tax Act 1994 will be updated by secondary legislation, as follows:

In Schedule 1 (registration in respect of taxable supplies: UK establishment):

  • in paragraph 1(1)(a), (1)(b), (2)(a) and (2)(b), ‘£83,000’ will be replaced by ‘£85,000’
  • in paragraph 1(3), “£81,000” will be replaced by ‘£83,000’
  • in paragraph 4(1) and (2), “£81,000” will be replaced by ‘£83,000’

In Schedule 3 (registration in respect of acquisitions from other member states):

  • in paragraph 1(1) and (2), ‘£83,000’ will be replaced by ‘£85,000’
  • in paragraph 2(1)(a), (1)(b) and (2), ‘£83,000’ will be replaced by ‘£85,000’

Summary of impacts

Exchequer impact (£m)

2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021 2021 to 2022
nil nil nil nil nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure will not impact on family formation, stability or breakdown. This measure relates solely to increasing the VAT registration thresholds for businesses by inflation and will not affect the current availability or price of goods and services from registered and unregistered businesses.

Equalities impacts

The measure is not expected to have a disproportionate impact on people with any of the characteristics which are protected under the Equality Act 2010 (and relevant Northern Ireland legislation).

Impact on business including civil society organisations

This measure is expected to have a negligible impact on a small number of businesses. Revalorisation of the threshold will save about 4,000 businesses from the costs they would otherwise have incurred in registering for and administering VAT. There are not expected to be any additional on-going costs.

This measure is not expected to have any impact on civil society organisations.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other)

The impact on HMRC costs of revalorisation of the threshold is negligible and will be met from existing baselines.

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, please contact Kevin Coyle by Telephone: 03000 598805 or email: Kevin.Coyle@hmrc.gsi.gov.uk.