Good News for Small Businesses in 2024 as the VAT Registration Threshold Increases

UK Chancellor Jeremy Hunt was the bearer of good news in the recent Spring Budget announcement, including a welcome change for many small businesses: an increase in the VAT registration threshold. This is the first such rise in seven years, and it's set to positively impact a significant portion of the UK's business landscape.

How Is the VAT Registration Threshold Changing?

Previously, businesses with an annual taxable turnover exceeding £85,000 were required to register for VAT. This meant additional administrative burdens, including charging VAT on sales, reclaiming VAT on purchases, and submitting regular VAT returns to HMRC.

However, effective April 1st, 2024, the new threshold has been raised to £90,000. This means many small businesses that previously fell above the threshold can now breathe a sigh of relief and potentially deregister for VAT.

Benefits for Businesses

The increased threshold offers several advantages for qualifying businesses:

• Reduced administrative burden: Deregistering for VAT eliminates the need to track, charge, and report VAT, freeing up valuable time and resources for core business activities.
• Improved cash flow: Businesses no longer need to pay VAT upfront on purchases before reclaiming it later, potentially improving cash flow.
• Simplified pricing: Businesses can potentially offer more competitive pricing by not having to factor in VAT on their products or services.

Who Is Affected?

This change impacts two groups of businesses:

1. Businesses currently VAT registered with a turnover between £85,000 and £90,000: These businesses may now be eligible to deregister for VAT, simplifying their tax affairs.
2. Businesses currently unregistered with a turnover approaching £90,000: These businesses can now reach a higher threshold before needing to register for VAT, giving them more breathing room for growth.

What You Should Do if You’re Impacted

If your business falls into either category, assessing your situation is crucial. Make sure you deregister the relevant products and services from VAT if your business falls into the first category.

Consider consulting with an accountant to determine the best course of action for your specific circumstances. They can help you understand the implications of deregistering and ensure a smooth transition. Osome has a team of UK-based accountants who can assist with all things tax and VAT-related, taking these financial admin matters off your hands so you can focus on what you do best: growing your business.

Overall, an increase in the VAT registration threshold is a positive step for small businesses. It simplifies tax administration, improves cash flow, and potentially allows for more competitive pricing. If your business is affected by this change, take the time to understand your options and make informed decisions that benefit your company's growth.