Previously, Labour had pledged not to increase income tax, National Insurance, or VAT rates for working people.
One possibility, could be a major VAT registration threshold cut to drag thousands of enterprises out of the tax net. After all, The UK has the highest VAT registration threshold in Europe. It is estimated that the threshold is holding back over 25,000 businesses from taking on new work to avoid all of their sales becoming liable to VAT.
However, because Ms Reeves needs to stimulate growth to secure revenues, especially in the small business sector. Potentially a rise in the VAT threshold is the answer. This would take more businesses out of the tax net who are suppressing their sales to avoid having to charge 20% VAT on their entire revenues.
Conflicting media reports with some headlines suggesting the registration threshold change to ‘pro-growth £100,000 or tax-raising £30,000?’
The current £90,000 VAT registration threshold was raised in 2024 for the first time in nearly 10 years.
Is the government about to give small businesses a break or will new obligations and higher costs be coming their way?
Why the VAT threshold matters?
The UK currently has the highest VAT registration thresholds in Europe at £90,000. For businesses that turnover less, they don’t need to register for VAT or have the additional admin and pricing implications that do go with being registered.
The current threshold can see many businesses going over the threshold and the resulting price increases may make them less competitive with other businesses who are not registered and able to offer a lower price.
The Federation of Small Businesses is lobbying for a higher threshold — ideally over £100,000. Their argument: let entrepreneurs focus on expansion, job creation and investment rather than compliance.
What it means for small businesses
The main issue now is uncertainty. Small businesses don’t know whether the budget will bring relief or extra burdens.
If the threshold does rise to £100,000 or more: some firms that may be holding back could push ahead with expansion. This would be a modest but a welcome sign that the government wants to back growth.
If it falls to £30,000: thousands of small traders would be subject to having to register for VAT, facing new paperwork, cash flow issues and increased administration. For many, this could curb their growth strategy.
One thing is for certain, until the Chancellor gives her announcement on the 26 November, nobody will know which way this will go. Until then small businesses are playing a waiting game to see what it will mean for them in the future.
