Businesses curb growth to duck VAT threshold, HMRC data suggests

"Under current rules, once a business exceeds £90,000 in taxable turnover, it must register for VAT and charge 20 per cent on most goods and services. Registration also brings quarterly reporting requirements and compliance costs, often requiring specialist accounting support."

"For many microbusinesses operating on tight margins, particularly in hospitality, retail and trades, the threshold can represent a sudden jump in both administrative burden and pricing pressure. Adding VAT can make services less competitive against smaller, non-registered rivals."

"Industry advisers say that to remain below the limit, some cafés and shops are reducing opening hours or closing on quieter days. Tradespeople are reportedly capping workloads or switching to four-day weeks. Others are restructuring operations, a practice known as 'business splitting'."

HMRC data reveals that 683,700 businesses operated below the £90,000 VAT threshold in 2025, up from 671,000 the previous year, while firms reporting turnover between £90,000 and £150,000 declined sharply from 306,300 to 280,400. This pattern suggests deliberate revenue management to avoid mandatory VAT registration. Once businesses exceed £90,000 in taxable turnover, they must register for VAT, charge 20 percent on goods and services, and comply with quarterly reporting requirements. For microbusinesses with tight margins in hospitality, retail, and trades, this creates a sudden administrative and pricing burden. Some businesses are reducing operating hours, implementing four-day weeks, or restructuring operations through business splitting to remain below the threshold. The House of Commons business and trade committee has warned the VAT threshold actively discourages firm growth.

Read at Business Matters