Small businesses are bracing for a major shake-up after it emerged the Treasury is considering slashing the VAT registration threshold from £90,000 to just £30,000.
The move, reportedly under review ahead of the November 26 Budget, would pull tens of thousands of sole traders and small firms into the VAT system for the first time, forcing them to charge customers more and deal with additional red tape.
The change is being examined as part of Chancellor Rachel Reeves’s hunt for up to £30bn in extra revenue following warnings from the Office for Budget Responsibility that Britain’s productivity outlook will be downgraded. The cut could deliver billions to the Exchequer by widening the tax net, but critics warn it risks hammering independent businesses already squeezed by high inflation, weak consumer demand and rising borrowing costs.
Analysts said the measure would be felt most sharply by small traders such as electricians, builders, hairdressers and consultants, many of whom deliberately keep their turnover just under the current £90,000 threshold to avoid registration. Lowering the bar to £30,000 would leave far fewer with that option, raising prices for customers and adding to paperwork burdens.
Business groups have previously described such a move as a “tax on ambition” that discourages growth. The Federation of Small Businesses has long argued that a steep drop in the threshold would trap fledgling companies in “VAT limbo,” where they must pass on higher costs but struggle to compete with unregistered rivals.
While the Treasury has refused to comment on “speculation” ahead of the Budget, insiders say the option is being modelled alongside other tax-raising ideas – including an extension of the freeze on income tax thresholds, levies on pensions, and even new duties on sugary snacks.
If Reeves proceeds, it would represent one of the most significant overhauls of VAT in decades, potentially reshaping the landscape for Britain’s 5.5 million small businesses.