The VAT threshold has been frozen at £85,000 for the next two years to give the government time to review the current system and consider proposals for reform
This means that unlike previous years there will be no increase in the registration and deregistration thresholds from 1 April 2018 through to April 2020.
Freezing VAT will raise an additional £490m in VAT revenue for the Treasury, adding to the current £120bn VAT take, which accounts for 22% of the total annual tax receipts.
The Chancellor confirmed that he had listened to the feedback from the Office of Tax Simplification warning about the risk of the cliff-edge which sees small businesses avoiding entering the VAT world by stalling growth.
The taxable turnover threshold which determines whether a person must be registered for VAT, will remain at £85,000.
The taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000.
The registration and deregistration threshold for relevant acquisitions from other EU member states will also remain at £85,000 while the UK is a member of the EU.
The government has been considering a review of existing thresholds particularly as the UK has the highest VAT threshold in the EU, where the average is £20,000 for VAT registration.
It keeps over three million small businesses out of VAT, but evidence suggests that it also distorts competition between businesses which have to charge VAT and those who do not.
Rob Marchant, partner at Crowe Clark Whitehill said: ‘The Chancellor announced that the VAT registration threshold will not be changed for the next two years while a review is carried out of the implications of changing this (either up or down).
‘Having a high threshold is often regarded as creating a “cliff edge” for businesses that grow to the point of crossing that line. However, keeping a significant number of small businesses away from the obligations of being VAT registered allows them to focus on running their operations without additional worry. Many small businesses will welcome the retention of the threshold.’
The government will complete a review of how the VAT system operates and possible reform with detailed proposals set to be published by March 2020.