The VAT registration threshold has been frozen at £90,000 since April 2024 – the longest period without an increase in over 30 years. This freeze is quietly taxing growth: as inflation and turnover rise, more small businesses are dragged into the VAT net. The Office for Budget Responsibility’s November 2025 Economic and Fiscal Outlook estimates that fiscal drag from the frozen threshold will pull an additional 28,000 businesses above £90,000 turnover by 2028–29, forcing them to register, charge 20 % VAT, and face higher admin costs.
For a typical sole trader or small limited company – a local electrician, a hairdresser, or an independent retailer – crossing £90,000 means an immediate £18,000 VAT bill to HMRC (even though customers pay it). Many deliberately cap their turnover at £89,999 to avoid registration, turning down work, refusing overtime, or splitting invoices – all of which stifles growth. The British Chambers of Commerce Q4 2025 survey shows that 41 % of SMEs near the threshold say the freeze is their biggest single barrier to expansion.
Large retailers and online platforms face no such disincentive. Small firms – the ones that employ 60 % of the private-sector workforce – are penalised for succeeding.
The solution is simple, fair, and low-cost:
- Index-link the VAT registration threshold to CPI inflation each April, starting in 2026.
- If inflation is 3 %, the threshold rises to £92,700.
- Keep the deregistration threshold at 95 % of the registration level to prevent yo-yo registration.
- Estimated cost to the Treasury in the first three years: £220 million in lost VAT revenue – less than 0.3 % of the £80 billion annual VAT take and fully recouped through higher economic growth and employment (OBR modelling of threshold increases).
This is not a giveaway; it is removing a perverse penalty on success. The threshold was last increased in 2017. Inflation has risen 28 % since then – yet the limit stays frozen. Index-linking would restore fairness without complexity or loopholes.
Stop punishing small businesses for growing. Let them expand, hire, and invest without fear of a tax cliff.
The 1832 Club is fighting for these changes. The more members we have, the louder our voice in Westminster.
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