Raising the VAT threshold

The VAT threshold determining when a business must register to charge VAT, is stuck at £85,000. This was the level Ministers were told the EU required. With rapid inflation this is now a small amount. If a business makes a profit of 10% it has to register when it reaches £8500 of profit. Many small businesses  now seek to keep their turnover below the ceiling, putting off taking on extra business. They do not want the extra costs of setting up a VAT system, reporting to HMRC, and dealing with VAT inspections when they want to be growing their business and serving customers. Some businesses look for ways to exceed the turnover threshold by accepting cash and  not declaring any of that transaction for tax, so there is a loss to the tax authorities.

At a time when we need growth and when we need extra capacity of many kinds to supply more and help curb inflation, it would be a good idea to raise the threshold. Putting it up to £250,000 would be a big win, allowing many more businesses to do a bit more without the tax complication, and reducing tax evasion. Overall there would be more revenue growth as the extra business generated produced more taxable employment, more purchases of VATable items used by the businesses and their customers, and more profits tax on the successful businesses.


  1. Mark B
    February 28, 2023

    Good morning.

    I do not disagree with our kind host on this but, I think can and should go much further with VAT reforms.

    Much like comments made from Christine, John and Alan the other day, we need to look at VAT as a luxury tax and not put it on things such as energy and hot food. We should also raise the level whilst at the same time reduce corporation, certain duties and personal taxes. VAT, in my opinion, is a consumption tax and, if we are to follow acorns logic that taxes are used to destroy money and control the economy, then having VAT will be a good way of either putting the break on the economy when it begins to overheat or, freeing it when there is not a lot of money around. It would also pt a check on government spending and, would not hurt the poor as they spend in proportion of what they have on non-VAT items *.

    Taxes should be elastic not written in stone. And governments need to control spending better.

    * This assumes that VAT will be removed from fuel, energy and hot-food etc.

  2. Stred
    February 28, 2023

    Not only with VAT does HMRC wish to cause businesses maximum administration but next year they will have to make quarterly income tax returns, using digital software which costs more. This so called Conservative government has become the party of the civil service. But they won’t vote Conservative because they prefer an even more statist party run by ex civil servants and academics.

  3. DOM
    February 28, 2023

    The Socialists are now in charge and that means all private business and indeed the private sphere is viewed with extreme suspicion and in many ways held in contempt and therefore exposed to demonisation, exploitation and propaganda using Maoist woke poison

    One must always keep in mind that Mr Redwood’s party have now been in government since 2010. Voting for them and Labour will only make things worse

    1. glen cullen
      February 28, 2023


  4. turboterrier
    February 28, 2023

    In Spain where I had a business everybody small or large paid IVA (VAT) no matter what the turnover was.
    The rate was quite low and it worked.
    You had your accounts checked out monthly and if you had a lot of IVA to go out the money was used to offset it by purchasing tools and equipment.
    When you sold your property all the receipts for all the improvements ever carried out over a ten year period were tax deductible against CGT. If owners used the black economy they couldn’t claim anything..

  5. Cuibono
    February 28, 2023

    Surely that disincentive to work is one very good reason why it is so difficult to get jobs done?
    In 2021 £11,000 was apparently the average profit made by a SME

    A very good small London cheesemonger trading for 38 years has had to throw in the towel. It blames the ludicrous plague response.

    1. glen cullen
      February 28, 2023

      I blame this government

    2. APL
      March 1, 2023

      Cuibono: “Surely that disincentive to work …”

      In an economy where the government is paying to accommodate ‘migrants’ in two and three star hotels. Where is there any incentive to work ?

  6. Nigl
    February 28, 2023

    And in other news. The bribe is in. sausages for sovereignty. The ECJ reigns supreme as ever. Tory party in such trouble it will desperately accept and spin anything as a success.

  7. Geoffrey Berg
    February 28, 2023

    The main thing that prevents the growth of small business beyond the V.A.T, threshold is the cliff edge at the V.A.T. threshold – if a business’ turnover is £84,999 not a penny of V.A.T. is payable but if the turnover increases to £85,001, V.A.T. becomes payable on the whole lot, up to around £14,000. So by increasing turnover by £2, one can loses £14,000. (On John Redwood’s simple example of a 10% profit margin, that business would never make any profit if turnover goes over £85,000!). The solution I suggest to end this cliff edge effect (for most purposes) is to set the V.A.T. threshold at £60,000 but to deduct £10,000 per year from V.A.T. payable if that amount or more V,A,T, becomes otherwise payable. That would end the V.A.T. cliff edge and the deterrent to expanding businesses that V.A.,T. now constitutes which would be more than self-funding and which is rather more important than simply raising the V.A.T. threshold.

    1. glen cullen
      February 28, 2023

      Or just have a sales tax (not value added at every stage – but a single final customer sales tax), that doesn’t cost the business anything

      1. Shirley M
        March 1, 2023

        That is my preference Glen. It would save most businesses a lot of red tape and prevent the very expensive VAT fraud.

  8. Richard1
    February 28, 2023

    Good idea

  9. Cuibono
    February 28, 2023

    Actually we should not have VAT anyway.
    Wasn’t it a lovely EU imposition?
    And now we have VIDA which appears to be an EU brainchild but has HMRC spinning on its coat-tails.
    Such joyous plans for new ways of fining …actions demarcated by the months!
    We should not have VAT but it is a very important tax rake in for EU ( apparently) it funds “public services”. Do they still exist?

    1. glen cullen
      February 28, 2023

      Correct Cuibono

  10. Sea_Warrior
    February 28, 2023

    ‘If a business makes a profit of 10% it has to register when it reaches £8500 of profit. Many small businesses now seek to keep their turnover below the ceiling, putting off taking on extra business.’ Turnover and profit aren’t the same thing. But I support the idea of raising the threshold. The Chancellor’s focus, at the next budget, should be on helping small businesses – to stop them going bust. And then he needs to turn his attention to reducing corporation tax.

  11. Berkshire Alan
    February 28, 2023

    If you are a business selling VAT chargeable goods/products, then it makes sense to register because you can offset the purchasing charge of VAT against the selling charge of VAT from day one, because you are unlikely to remain below a turnover of £85,000 for very long at all, indeed if you are purchasing expensive VAT chargeable items, then even £250,000 would be reached in a short space of time.
    Only if you are selling your own Labour without materials, or with zero rated products would a real rise in the threshold start to make a difference.

  12. Ian wragg
    February 28, 2023

    But you can’t do that without Brussels permission. Level playing field and all that.
    I read guido,s draft if the new agreement on NI, lots of words but no real substance.
    Even a box of cornflakes could potentially cross the border and the ECJ is still the arbiter.
    Now fishy can set about an amnesty for all the gimmigrants and that’s the backlog solved

    1. glen cullen
      February 28, 2023

      A good summary and comment by SirJ on facts4eu

  13. Michael Cawood
    February 28, 2023

    Sadly the Conservative government is very greedy for more and yet more taxes, so I would not expect the VAT threshold to be raised.

  14. Narrow Shoulders
    February 28, 2023

    A one man band providing services makes more than 10% margin Sir John. If you are talking about someone selling products on ebay or Amazon then it is beneficial to them to be registered for VAT as they can reclaim the input tax on goods or components and make 20% greater return.

    I agree with your premise and the threshold should probably raise to £100,000.

    In these circumstances cash is king.

  15. William Smith
    February 28, 2023

    Exactly. Never mind those who shout about the worries of being self employed, e.g. not knowing when the next job will come in, this is how some self employed evade paying their correct level of Taxation unlike those on PAYE who have no choice but to pay the correct amount of Tax. It is a well known practice for small Business’s to take several cash payments throughout the year which then don’t go through their Books.

    1. Ex-Tory
      March 1, 2023

      I assume when you say people are breaking the law that you have evidence.

  16. Sakara Gold
    February 28, 2023

    If I had a business only doing £85k a year at a 10% margin I would give up and go on Universal Credit and the food banks.

    HMRC have never been able to tax the black economy, but this does not stop them from persecuting young entrepreneurs just starting out and those unable to get their tax returns in by January due to pressure of work. I would go further and suggest a sliding VAT rate starting at 5% on £500,000

  17. Bloke
    February 28, 2023

    The VAT threshold is far too low. £250k would be a sensible level if VAT has to be tolerated.
    VAT is a daft method of collecting tax. Businesses have to charge for their customers for adding value as if adding value should be discouraged with a penalty fee! Those same businesses that have already been charged that added value cost by their own suppliers then deduct it as a tax rebate to pay the Treasury less.
    Tax should be charged on those things which should be prevented, not good things like adding value.
    Tax instead crime, pollution, waste, anti-social behaviour, junk food, smoking, excess alcohol, vandalism, fly tipping, scams, graffiti, traffic obstructers, nuisance calls, long waiting times on call centre phones + any widely-agreed sources of public nuisance.

  18. Nottingham Lad Himself
    February 28, 2023

    “Ministers were told that the EU required” not “The EU required”.

    It appears that the countries of the European Union have widely varying thresholds and so are free to set them.

    That is, it is not a “brexit win” to do this?

  19. agricola
    February 28, 2023

    Personally I would go for a £500,000 VAT threshold while at the same time reducing VAT to 10%, with a revue of what should be subject to VAT. It would prove a real boost to business activity and possibly reduce the black economy, therebye increasing the overall tax take.

  20. John McDonald
    February 28, 2023

    I don’t think the VAT threshold has much impact on the cash transaction economy. Discussion of this motivates Governments and other Global interests to remove the option to use cash money and completely control our finances. In fact how we live our Lives.
    VAT is just another Government Tax we all have to pay. Reducing VAT would encourage people to spend more. Profit and turnover are not directly linked. A one person consultancy with a turn over of £80,000 is much more likely to be making a profit of £70,000. On the other hand a one person undertaking with a turnover £80,000 and only making a profit of £ 8000 could probably claim benefits and pay no tax at all. However not likely that this situation would exist as just not worth the effort. But of course if profit after wages paid , a better picture of business. The VAT threshold is a factor in growing a business employing more than a few people but NI and corporation tax are a much bigger deferent to expansion. But not a significant deferent to self- employment

  21. Sharon
    February 28, 2023

    I had a conversation with a small business owner at the weekend, and you are exactly right about the use of cash to stop profits tipping over the limit.

    Ironically, a lot of people cite this situation for the reason for doing away with cash. £250,000 would be a far better limit.

    Incidentally, another person I spoke to said that cash should go for the reason mentioned – to avoid paying tax – but this person believes that a cashless society would mean things would be exactly the same as now, but we just wouldn’t need to go to the ATM.

    I wonder how many others think this too? This is so way off how things could/will be.

  22. Dave Andrews
    February 28, 2023

    If the company makes a profit up to £50,000 it will pay corporation tax at 19%. After that it will pay it at 26.5% so it ends up paying 25% by the time it gets to £250,000. Another disincentive is if it employs someone, as then it will start paying 15.05% employer’s NI on their salary.
    A government that pays lips service to wanting growth in the economy but actively seeks to stifle it, punishing enterprise like it was some kind of social evil that needs to be eradicated.

  23. Sir Joe Soap
    February 28, 2023

    Wherever you go with this, there will be a cohort of businesses just above the level who get pushed out by those just under. Consumers will be paying different prices to businesses employing say 3 people to those employing 4. Really this de facto effective VAT relief should only apply to one man bands, to help them off when they start up.
    Far better to reduce the rate entirely back to 15% then 10% and cut spending.

  24. THUTCH
    February 28, 2023

    Great idea. But sadly, I’m not sure anyone is listening in your Government.

    1. glen cullen
      February 28, 2023

      I believe you’re correct, just look at how smuck the politicians are today over the new NIP deal (balmoral accord), the divide is getting bigger

    2. Nottingham Lad Himself
      February 28, 2023

      One problem would be that quite large businesses would simply fragment their operations on paper so that all the parts were below the threshold.

    3. Ashley
      February 28, 2023

      Indeed they not interested in a sensible JR type of agenda, only interested in tax increases, unreliable expensive energy for bonkers religious reasons and endless government waste. Cutting taxes or growing the economy is not remotely part of their agenda.

      1. Ashley
        February 28, 2023

        Peter Hunt in the Spectator.
        “King Charles should have run a mile from the Brexit debate”

        Indeed yet another major error from King Charles. Not staying clear of this dire Winsor Treaty and keeping out of politics, falling for net zero, climate alarmism & gross personal “do as I say not as I do” hypocrisy on this, his cash for honours foolishness, his appalling treatment of Lady Hussey… has he not inherited any decent advisors from the Queen?

  25. , George Brooks.
    February 28, 2023

    You are absolutely right Sir John, but the problem is that those Civil Servants in the Treasury have little or no business experience and have no idea what it is like to grow a small company. Add to that a useless chancellor that seems to ignore any advice or suggestions for improvement and we head towards a stagnant economy.

    1. Cuibono
      February 28, 2023

      Well of course you know exactly who could do all the financial jobs of govt. standing on his head with 10000% better results….
      And we are stuck with that lot!!
      Not even elected moreover.

    2. glen cullen
      February 28, 2023

      Those civil servants full stop, any remember Lord Olly Robbins – crafty

    3. Ashley
      February 28, 2023

      Civil servants are in the over tax and over regulate industry. This while delivering little or nothing of value or even negative value.

  26. RDM
    February 28, 2023

    Excellent idea!

    It’s very pleasing to know someone is making an effort!

    Well done!



  27. glen cullen
    February 28, 2023

    Just remove VAT altogther …its an EU derived tax system
    We’re taxed to death already

  28. peter
    February 28, 2023

    Absolutely spot on! but…………………………..

  29. Keith from Leeds
    February 28, 2023

    The simple lesson is that if a government overtaxes, the economy stagnates. This government is every bit as greedy as a Labour one & seems to have no idea of how to make the economy grow.
    As was said earlier, nobody in the government is listening!

  30. ChrisS
    February 28, 2023

    This is just one of the measures that would help small businesses.
    Last year I had a very good carpenter construct a new roof on part of our house. He did an excellent job and I supplied the materials through my own trade account. He was not VAT registered.

    I have just been in contact with him for a new, smaller job which he has declined to quote for. From April he will be VAT registered and he says he has not been winning jobs because of the extra 20% he is having to charge. He is saying that his turnover may well be lower than £85,000 in the next financial year as a direct result of having to register for VAT! He has told me that he has also lost another job I recommended him for, for the same reason.

    This is a crazy situation. An excellent tradesman who does a superb job is now losing business because of the VAT rules. £85,000 turnover is not a large amount for a self-employed man with all his overheads to include as well as wages. £250,000 would be much more reasonable.

    1. Berkshire Alan
      March 1, 2023


      Remember he only pays the difference in VAT from what he charges, to what he gets back against the VAT on materials cost.
      As a non registered person he gets nothing back on materials.
      Wherever you put the line you will disadvantage someone, at £25,000 it penalises a still small but larger business.
      The fact of the matter is you pay tax to improve or maintain the housing stock, which is what I thought the Government wanted.?

  31. Shirley M
    February 28, 2023

    I hated VAT when in business. It is extremely time consuming and unduly complicated. It is also a fraudsters paradise.

  32. glen cullen
    February 28, 2023

    Manga, a first tier automotive parts supplier on Halewood Merseyside is to close, losing 300 jobs and International Automotive Components losing another 90 jobs also at Halewood Merseyside, both feeding into Jaguar and other major car manufacturers.

    Maybe its VAT, maybe competition from China, maybe the cost of energy but certainly due to the policy of net-zero and the planned ban on ICE vehicles in just 7 years in 2030 …This is just the start

  33. Bert Young
    February 28, 2023

    Any form of taxation is a handicap to inspiration ; individuals and companies will devise all sorts of mechanisms to avoid and delay paying it . Enterprise should not be stifled and increasing the wealth of individuals will always have a major effect on the overall economy .

  34. James Freeman
    February 28, 2023

    For the average business, £85,000 is the worst possible level, as this is where they would need to take on a full-time employee or apprentice to expand.

    Dealing with VAT incurs significantly more administrative expenses. Managing the risks and additional costs of also taking on staff is too big a hurdle for most businesses to leap.

  35. Bryan Harris
    February 28, 2023

    Another sensible suggestion that will be lost to the money grabbing tax raising bureaucrats who want every penny they can squeeze out of us.

  36. Ex-Tory
    February 28, 2023

    How very true. Those of us living in the real world know what a big factor the low VAT threshold is in discouraging people from starting businesses or growing their existing businesses.

  37. a-tracy
    February 28, 2023

    I don’t know why you want to stand again for this version of a conservative party, John; they aren’t listening to you; the broad church is now a narrow nave, and the chancel is just listening to those that can fit in that tiny space.

    The remain ultras are celebrating victory already before the ink is dry.

  38. forthurst
    February 28, 2023

    On more than one occasion I was the victim of a training exercise for a newbie which involved the VAT inspector going through every transaction in my books wasting a large part of a day when I could have been earning.

    Could they not create training exercises internally, for example involving investigations in which the business proprietor and or his accountant pretends he can’t understand English and doesn’t know how to maintain proper accounts; a category which for some reason inspectors tend to avoid.

  39. Iago
    February 28, 2023

    No chance.

  40. Old Albion
    February 28, 2023

    I guess this headline has been inspired by the so called ‘Windsor framework’ Well if the UK gov. is now free to alter VAT rules without objection from the EU? Perhaps you can persuade Rishi ‘tax ’em more’ Sunak to remove VAT from our ever sky-rocketing energy bills.

  41. Javelin
    February 28, 2023

    VAT is almost the definition of unnecessary red tape.

    From producer, all along the supply chain and finally to seller businesses are filling in forms.

    I can think of a simpler tax, like a sales tax, that could be leveraged with much less red tape.

    1. glen cullen
      February 28, 2023

      Fully Agree

    2. Shirley M
      March 1, 2023

      My point exactly, Javelin. I can see why governments love it, as it gets the taxes into their greedy mitts a lot sooner, but at the expense of every business that does not sell to the public.

  42. Mary M.
    February 28, 2023

    Very reassuring to see Sir John’s comment in Brexit Facts4EU.Org on Rishi Sunak’s negotiations yesterday with Ursula von der Leyen. All media outlets seemed to want us to believe that our PM had played a blinder.

    The article in which he is quoted is ‘EXCLUSIVE : Facts4EU.Org provides a definitive guide to the reality – not yesterday’s circus’.

  43. The Prangwizard
    February 28, 2023

    And Brexit? What about our fish?

    1. glen cullen
      February 28, 2023

      The fishy deal with the EU and France is in force till 2030 …and beyond

  44. gregory martin
    February 28, 2023

    Raising the threshold delays the reclamation of input tax, at a time when cashflow is critical in a small business start-up. With trades such as plumbing , kitchens etc, a high proportion of materials carry VAT which the unregistered business can neither claim back nor charge forward, without registration.
    Better would be to ease registration and VAT systems to put the new business on the rails to expansion, for to succeed , they need every pound they can earn.

  45. Lynn Atkinson
    February 28, 2023

    Any businessman making 10% is very lucky indeed. The margin in generally half that. So VAT kicks in when the owner ‘earns’ £4,250 pa. Yet selected benefits recipients can claim ore than the average wage – way more.
    How on earth are we going to encourage people to start businesses Sir John?
    I am very concerned that pet of the U.K. remains in the EU Single Market. The rest of the U.K. will be dragged back to ‘unify the country’. However as I believe the EU will not exist in a couple of years (max), I don’t think this is a hill worth dying on.

  46. turboterrier
    February 28, 2023

    The old contracting principle about more is less, definitely does seems to have stumbled if not crashed when you read the EU interpretation of yesterday’s seen by some as a the deal of all deals.
    Many areas of business will still remain in the clutches of EU. Cannot believe this will be allowed to happen.
    Send for the Article 16 High Executioner PDQ. We are being played as idiots. As with all contracts it is not what is agreed, It’s all about the perception of the other party on what was agreed. Incompetence knows no bounds.

  47. John Downes
    February 28, 2023

    This suggestion is far too sensible to be adopted by this government.

  48. Ashley
    February 28, 2023

    The more I hear from Sunak on this “agreement” delivered in his, I am another PM come bent secondhand car dealer PM manner with phrases like “you can pull the emergency brake” the more convinced I am that this Stormont “emergency brake” (controlled by the UK government in fact and not Stormont) is virtually worthless as he and the EU must realise.

    He even believes that “inflation causes price rises”. No Sunak it is the complete reverse rising prices are the cause of inflation. Rising prices, your net zero expensive unreliable energy lunacy, the pointless lockdown and your vast currency printing & currency debasing policies, plus the endless government waste caused the inflation. All that expensive education at Eton & Oxford & yet you did not even grasp this?

    Surely this is basic GCSE level economics indeed it is not just blindingly obvious to anyone with half a brain?

  49. Fedupsouthener
    February 28, 2023

    I’ve virtually given up any hope of an economic turn around with these 2 clowns in charge. It’s obvious what needs to be done but the exact opposite seems to be flavour of the month. It’s just so depressing John to see what your government has done and is doing to this country. I cant wait for an election but then I feel just as bad knowing this useless government has pa ed the way for more economic madness with Labour. Well done.

  50. Tony Hart
    February 28, 2023

    Totally agree with your view. Maybe the VAT minimum should follow our pensions and be triple locked every three years. How much would raising the threshold cost HMG?

  51. rose
    February 28, 2023

    When the Usurper was excitedly reading out his list of mundane things we are now allowed by the EU to do in our own country, I could have cried. And when Frau von der Leyen reminded him cruelly who is actually in charge, I wasn’t surprised.

    Has he conceded all this to spite Boris? To avoid using Boris’s NIP Bill to take back N Ireland and thus free the Mainland as well? Or is he just preparing the way for our return to the EU under Starmer?

    1. glen cullen
      February 28, 2023

      Why is this government cancelling the progression of the Boris NIP Bill for a Framework ….a Framework

      1. rose
        March 1, 2023

        To cancel Boris. No Boris, No Brexit.

  52. George Sheard
    February 28, 2023

    So why are we not doing it?

  53. glen cullen
    February 28, 2023

    BBC reporting that Sainsbury-Argos are closing 2 depots losing 1,400 jobs …probably due to, business rates, high taxation, ULEZs, high energy costs and net-zero compliance

  54. Fran
    February 28, 2023

    It’s all gone very quiet today – I wonder why?

  55. Lynn Atkinson
    February 28, 2023

    Oh! The ‘Windsor Agreement’ is unilateral? Cannot be altered – just like the Maastricht Treaty. So why bother allowing the Commons to debate it? For optics alone! Or is there going to be a ‘paving debate’ like the one conceded before Maastricht? That one we lost by 3 votes!

    1. glen cullen
      February 28, 2023

      Definitely not Democracy

    2. Sea_Warrior
      March 2, 2023

      Sunak appears to be making the same mistake with the DUP that May made with her own Cabinet. Perhaps it should be named the Chequers Framework.

  56. derek
    February 28, 2023

    Sorry SJ, it won’t work. This government can never ever sanction a sensible idea. It is not in their DNA and a major reason why they are doomed.

  57. glen cullen
    February 28, 2023

    ft.com –
    ‘Shell’s top executives explored moving the Anglo-Dutch energy group to the US in a proposal that threatened to deliver a hammer blow to the City of London. Welcome to Net Zero Europe!’
    Probably got nothing to do with VAT, Corporation Tax or Net-Zero

  58. rose
    February 28, 2023

    In the last seven years the remain side could have done what the unionists did in N Ireland when they lost the referendum on the Belfast Agreement. They could have gracefully accepted the result and made sure it became a success.

  59. Lindsay McDougall
    March 1, 2023

    Is this idea better than keeping corporation tax at 19%?

  60. Mark B
    March 1, 2023

    You last comment is a bit of an over exaggeration. It was, and is, parliament that has cost the UK social economy, and many of those there are anti-brexit.

  61. Sarah Davies
    March 1, 2023

    I have a question about the VAT threshold. I understand that it is currently stuck at £85,000, but I’m wondering if it might be possible to raise the threshold? This was the level Ministers were told the EU required, but with rapid inflation this is now a small amount. If a business makes a profit of 10% it has to register when it reaches £8500 of profit. Many small businesses now seek to keep their turnover below the ceiling, putting off taking on extra business. They do not want the extra costs of setting up a VAT system, reporting to HMRC, and dealing with VAT inspections when they want to be growing their business and serving customers. Some businesses look for ways to exceed the turnover threshold by accepting cash and not declaring any of that transaction for tax, so there is a loss to the tax authorities. At a time when we need growth and when we need extra capacity of many kinds to supply more and help curb inflation, it would be a good

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