Hundreds of UK small companies are persevering with to intentionally limit their progress to remain beneath the £90,000 VAT threshold.
HM Income & Customs knowledge exhibits that the variety of companies incomes underneath the VAT threshold elevated to 683,700 in 2025, up from 671,100 the 12 months earlier than. On the identical time, the variety of companies incomes simply above the brink, with turnover between £90,000 and £150,000, fell from 306,300 to 280,400.
Accountancy agency Lubbock Superb stated the figures point out that the VAT system is distorting enterprise behaviour as a result of hundreds are selecting to suppress progress quite than cope with the tax and administrative burden of VAT compliance.
Examples of actions founders are taking embody tourism companies closing for winter, retailers decreasing opening hours or closing on quieter days and tradespeople working four-day weeks.
The examine stated the federal government ought to elevate the brink to £115,000 to meet up with inflation.
Jaspal Dhillon from Lubbock Superb stated:
“Elevating the VAT threshold would take away a transparent block on progress. It could guarantee the executive and value burden of VAT falls on companies with the size and cashflow to soak up it, quite than holding again smaller companies on the level they’re attempting to develop.
“The VAT threshold has change into a transparent brake on progress for small companies. As a substitute of increasing, companies are making choices primarily based on easy methods to keep underneath an arbitrary restrict.”
