How the VAT Threshold Review Could Affect Your Business

The UK’s VAT registration threshold—currently £90,000—is under active government review. Any change will have a major impact on small businesses across Rugby and Warwickshire.

Here’s what the reform could mean for you.

Why Is the VAT Threshold Being Reviewed?

The UK has one of the highest VAT thresholds in the world. HMRC is concerned that:

• It discourages businesses from growing
• Some owners “stall” sales to stay below £90k
• The Treasury loses potential tax revenue

A reduction has been discussed for years—and 2025/26 may finally see it happen.

What If the Threshold Falls?

If the threshold drops to £60k or £70k:

1. More businesses will be forced to register
2. Prices for consumers may rise by 20%
3. Admin costs will increase
4. Businesses selling B2C may lose competitiveness
5. Small service providers could struggle with cash flow

For B2B businesses, the impact is smaller because clients reclaim VAT.

What If the Threshold Rises?

Although unlikely, some argue it should be increased to help SMEs.

If raised:

• Fewer businesses would need to register
• Start‑ups would enjoy lower compliance costs
• Smaller traders would gain more flexibility

However, the government may see this as too costly to revenue.

What Should You Do Now?

Regardless of the outcome:

✔ Monitor your rolling 12‑month turnover
✔ Review pricing strategy NOW
✔ Consider voluntary registration if you sell B2B
✔ Explore VAT schemes (Flat Rate, Annual Accounting)
✔ Speak to an accountant before crossing the threshold

Redwood Accountants Can Help

We help local businesses prepare for VAT changes by:

• Running VAT impact assessments
• Advising on pricing strategies
• Ensuring compliance with minimal admin
• Setting up the best VAT scheme for your sector

Final Thoughts

Any change to the VAT threshold will be significant. Preparing early means smoother transitions and fewer surprises.

Speak to Redwood Accountants for tailored VAT advice.

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