No Change to the VAT Threshold in the 2017 Budget

30 November 2017, 17:37

The Chancellor of the Exchequer, Philip Hammond, confirmed in his 2017 Budget speech that the threshold for businesses to register for VAT would remain unchanged for the next two years. This means the current threshold of £85,000 will not change for the time being.

There was no sign of a decision to reduce the rate of VAT charged on goods, either. However, Mr Hammond said he was focused on reforming the tax rather than simply adjusting the rate at which it should be paid. 

There was some interest in whether there would be any notable changes to the value-added tax prior to the Budget. This stemmed from a report from the Office of Tax Simplification (OTS) focusing on routes to simplifying the tax. The report ran to 65 pages, and focused on the registration threshold, VAT administration, and multiple rates, among other issues.

The Chancellor responded to the review on 22nd November this year, going into detail on each recommendation. He further confirmed his intention to keep the VAT threshold for registering for the tax the same, while the issues surrounding this are considered. He also agreed there was ‘merit in a review of the current system of VAT’, and it does look as though this will occur. Simplifying the way the system works would be beneficial for many businesses. 

Some have found that registering for VAT loses them money, unless they go far above it to make it worthwhile. There was speculation that the threshold might be reduced in line with the far lower rates in place elsewhere in Europe. Germany, for example, has a threshold of £15,600 in place. However, the Chancellor has pointed out that most businesses will be free of the requirements placed upon them by the VAT system, simply because the threshold is much higher. This was one reason why he did not raise it.

Many will be hoping the threshold does not go lower, as it means they do not need to be concerned with keeping up with VAT records and paperwork. It was news that was welcomed by the chairman of the Federation of Small Businesses, Mike Cherry. He said more than a week each year was spent on VAT-related obligations when businesses were registered. Clearly, there is a huge downside to a much lower threshold coming in. 

With Brexit on the horizon, we shall not be tied in to any European thresholds that might be agreed upon, either. With the opportunity to continue setting our own rates and thresholds, the high threshold of VAT will hopefully remain in place for the foreseeable future. We shall report on any further news stemming from a review of the VAT system as and when it becomes known. It could be some time before anything of note comes to light.