Policy paper

VAT: maintain thresholds for 2 years from 1 April 2018

Published 22 November 2017

Who is likely to be affected

Businesses whose turnover, or total EU acquisitions, are close to the existing VAT registration threshold of £85,000.

General description of the measure

The VAT registration and deregistration thresholds will not change for 2 years from 1 April 2018.

The taxable turnover threshold which determines whether a person must be registered for VAT, will remain at £85,000.

The taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000.

The registration and deregistration threshold for relevant acquisitions from other EU Member States will also remain at £85,000 whilst the UK is a member of the EU.

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 £85,000, although businesses can opt to register voluntarily if they wish to do so.

The deregistration threshold for taxable supplies, currently £83,000, is set lower than the registration threshold to avoid businesses trading around the threshold level having constantly to register and deregister.

It is the highest threshold in the EU. It keeps over 3 million small businesses out of VAT, but evidence suggests that it also distorts competition between businesses which have to charge VAT and those who don’t.

Customer views on the optimum threshold differ. The Office of Tax Simplification report published on 7 November 2017 recognises the distortions it causes and recommends the government ‘should examine the current approach to the level and design of the VAT registration threshold, with a view to seeking out a future direction of travel.’ The government intends to act on this recommendation by consulting on the design of the threshold. In the meantime, the government will maintain the VAT registration and deregistration thresholds at £85,000 and £83,000 for 2 years while we consult.

Background to the measure

The measure was announced at Autumn Budget 2017. The government will consult on the design of the VAT threshold during the 2 year period ending 31 March 2020.

Detailed proposal

Operative date

The thresholds will be maintained at their current level for 2 years from 1 April 2018.

Current law

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

Proposed revisions

There will be no revisions to existing legislation, and no new legal provisions will be introduced.

Summary of impacts

Exchequer impact (£m)

	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023
Impact	-	+15	+55	+105	+145	+170

These figures are set out in Table 2.1 of Autumn Budget 2017 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.

Economic impact

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

Impact on individuals, households and families

The measure has no impact on individuals or households as it only impacts on businesses. There is no impact on family formation, stability or breakdown.

Equalities impacts

HM Revenue and Customs (HMRC) has not identified that any specific groups with protected characteristics that would be affected by this measure.

Impact on business including civil society organisations

This measure is expected to have a significant impact on businesses with turnover just below the VAT threshold. Maintaining the current threshold levels is expected to result in approximately 6,000 additional small businesses (or 0.2% of unregistered businesses) having to register for VAT by the end of the 2018 to 2019 financial year and 33,000 businesses (1.0% of unregistered businesses) in total by the end of the 5 year scorecard period. This is out of a total business population of 5.5 million in 2016 as estimated by the Department for Business Energy and Industrial Strategy.

The one-off implementation cost to businesses entering the VAT system over 5 years is estimated to be negligible. The total ongoing administrative burden for the small business population of accounting for VAT will increase by an average of £13 million per year.

Businesses crossing the VAT threshold will also be required to comply with ‘Making Tax Digital’ for their VAT affairs from April 2019. They may incur additional one-off and ongoing administrative burdens and costs in order to operate digitally. These costs are set out in the related tax information and impact note.

Estimated one-off impact on administrative burden (£m)

One-off impact	£(m)
Costs	negligible
Savings	-

Estimated ongoing impact on administrative burden (£m)

Ongoing average annual impact	£(m)
Costs	13
Savings	-
Net impact on annual administrative burden	+13

Operational impact (£m) (HMRC or other)

HMRC will incur extra staff costs to implement this change estimated at £680,000 over 5 years.

Other impacts

Competition assessment: the VAT registration threshold can distort competition between businesses which have to charge VAT and those which don’t. Under this measure, the additional businesses which will be required to charge VAT may have difficulty in competing with businesses below the registration threshold. The government is considering the distortions created by the threshold through consultation.

Justice impact test: judicial impacts are expected to be negligible.

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 Steven Williams on Telephone: 03000 572469 or email: itpt.vatregistration&accountingpolicy@hmrc.gsi.gov.uk