VAT Registration Threshold: SMEs

Peter Bedford Excerpts

Tuesday 24th June 2025 Westminster Hall

[Mr Peter Bedford (Mid Leicestershire) (Con)]

I beg to move,

That this House has considered the impact of the VAT registration threshold on SMEs.

It is a pleasure to serve under your chairmanship, Mr Vickers. It was Napoleon Bonaparte who once said that “England is a nation of shopkeepers”. As is often the case with Napoleon, he was wrong. England, and indeed the UK, is a nation of entrepreneurs. Across the UK, early risers and late-night grafters—the men and women who channel their entrepreneurial spirits into businesses and serving their communities—form the backbone of our economy. However, we in this place sometimes let them down. That is certainly the case with the current nonsensical VAT registration threshold.

Right now, businesses in the UK have to be VAT registered when their turnover reaches just £90,000—an arbitrary figure. Once a small business has crossed that cliff edge, it is hit with added regulatory compliance costs and the need to charge their customers 20% more for their services. I do not want to pre-empt the Minister’s response, but I am well aware of the fact that the UK has one of the highest thresholds in Europe—that is not the point. I am arguing for the boldness to unleash the Great British entrepreneurial spirit once again.

Increasing the threshold to £90,000 was a positive move by the previous Conservative Government. I recognise the complexities surrounding the Windsor framework, but when we voted to leave the European Union in 2016, we wanted to take back control of our money, our borders and our laws. We should look at this again, and seek to also include Northern Ireland businesses with an increased VAT registration threshold.

As a chartered accountant by profession, I have seen first hand the implications that the UK’s tax regime can have for businesses. I enjoy conversations about the economy and business growth, and one recent example from my constituency surgery stands out. I met with Chris and Annie Ensell, talented entrepreneurs running a thriving wedding photography business called Bloom Weddings. Joined by their daughter, they told me of their success and their frustration. They had both become increasingly concerned about approaching and potentially surpassing the VAT registration threshold cliff edge.

They now face the agonising decision between limiting the number of weddings they agree to service or passing on increased costs to their customers, which would limit their competitiveness. I ask the Minister—who is part of a Government that say they are going for growth—is that fair? How will this encourage more people like Chris and Annie to build up their businesses?

In the Government’s manifesto, they claimed they understand that small firms, entrepreneurs and the self-employed face unique challenges, but we have seen them eat into small to medium-sized enterprise profit margins by increasing national insurance contributions and the national minimum wage. We have also seen them add more regulatory burdens with the Employment Rights Bill, which is set to add £5 billion to the costs of UK businesses. However, today is an opportunity to for the Minister to show real support for small businesses, such as those in my Mid Leicestershire constituency, by committing to review the VAT registration threshold.

I regret to say that I am not overly optimistic. When the previous Government rightly increased the threshold, Sir Edward Troup, a Labour tax adviser, ridiculed the idea, claiming that halving the threshold would somehow encourage growth. Perhaps even more shockingly, the current Under-Secretary of State for Work and Pensions, the hon. Member for Swansea West (Torsten Bell), has proposed slashing the threshold to a derisory £30,000.

[Robbie Moore (Keighley and Ilkley) (Con)]

Does my hon. Friend agree that this demonstrates that the Labour Government do not understand how our small businesses operate, and are not on their side? We see the impact of not only VAT registration, but employer’s national insurance, minimum wage and business rates increases, among other things. Does he agree that this Government do not understand how small businesses want to grow, operate and thrive?

[Mr Bedford]

I absolutely agree. Over the last year, particularly in the Budget and recent announcements, we have seen measures that stifle the growth of SMEs and small businesses. I thank my hon. Friend for raising that today because I am passionate about supporting them, not only so that the economy can grow, but so that we can create jobs and opportunities for all. I will always support small family businesses, and I will never support proposals to slash the VAT threshold to such low levels.

What is even more frustrating is the fact that the voice of industry has not been heard; its calls have fallen on deaf ears. The Federation of Small Businesses has previously highlighted that the extra bureaucracy of being VAT-registered adds £4,100 on average to the running costs of a business. UKHospitality also notes that there have been missed opportunities to be bolder and to alleviate regulatory burdens on the hospitality sector.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I do not know if the hon. Member is aware, but just this morning the Federation of Small Businesses in Northern Ireland released a report about the complications that the Windsor framework is creating for small businesses in Northern Ireland. Does he agree that SMEs are the backbone of the UK economy in all regions and that we need to try to do whatever we can to reduce bureaucracy rather than increase it, which is what the Windsor framework has achieved?

[Mr Bedford]

I thank the hon. Member for his intervention and I absolutely agree. As a Unionist myself, I want to see all parts of the UK thrive and grow, and that obviously includes Northern Ireland. This debate equally applies to Northern Ireland as it does to everywhere else in the Union.

I was talking about UKHospitality, which says it would like to see the VAT rate cut to 12.5% for the industry. I think that proposal has merits and I encourage the Minister to consider it.

Finally, I recently met the Institute of Chartered Accountants in England and Wales and it was clear that confidence among small businesses is in decline. The ICAEW would like to see the whole VAT system simplified and the registration threshold reviewed. That would reduce compliance costs, but it would also enable small businesses to grow beyond the restrictive cliff edge that is currently in place.

The Minister may not be a fan of Margaret Thatcher, our first female Prime Minister, but she believed that if people work hard, they should have the opportunity to succeed, and that the Government’s role is to create the conditions for that success. That was why she launched the enterprise allowance scheme, which helped to create now-famous brands such as Superdry and Creation Records.

However, if the Minister wants a more contemporary example of a state supporting businesses to grow, he should look at our good friends in Singapore. First, as is well-documented, corporation tax in Singapore is low, but in addition small businesses in Singapore have the pioneer certificate incentive, which encourages start-ups in undersubscribed industries. I am not asking the Minister for such a scheme here—I know that that would perhaps be too bold—but what I am asking for is a modest and sensible change that would make a real difference to entrepreneurs across the country. Raise the VAT registration threshold; push it beyond £90,000. Do it for the small businesses that want to grow, to diversify and to serve their communities, but also do it for the economy and for consumers, who will benefit from lower prices and greater choice. Above all, do it for the spirit of enterprise that has always defined the United Kingdom.

[Martin Vickers (in the Chair)]

I remind Members that they should bob if they wish to be called during the debate.

--- Later in debate ---

[Mr Bedford]

I thank the Minister for his speech. I ask him to take back to the Treasury the various arguments that have been put forward today, particularly about the benefits for the broader economy and for our local communities that could be achieved by reviewing the VAT registration threshold.

I thank the hon. Member for Mid Dunbartonshire (Susan Murray), who spoke about the benefits of doing so. She said that local businesses foster community pride, but that the tax system is very complicated for them.

I thank my hon. Friend the Member for Broxbourne (Lewis Cocking), who said he is frustrated that the current system does not have a taper mechanism. I ask the Minister to look at that and consider my hon. Friend’s arguments about how that would benefit small businesses—particularly those that wish to grow.

I thank my hon. Friend the Member for Keighley and Ilkley (Robbie Moore), particularly for his arguments about the fish and chip shop industry and similar small businesses that are holding back their growth because they are on the cusp of the registration threshold. If they surpass it, additional costs and burdens will be placed on them.

The hon. Member for Strangford (Jim Shannon) spoke about his frustrations, which I share, about how the Windsor framework constricts businesses in Northern Ireland and prevents them from being more competitive and on a par with those in the rest of the United Kingdom. I appreciate the intervention of the hon. Member for East Londonderry (Mr Campbell) on the same point.

I thank the hon. Member for Inverness, Skye and West Ross-shire (Mr MacDonald), who has particular expertise with VAT. As someone who holds apprenticeships and skills training in high regard, I appreciate his point that reviewing the threshold could enable smaller businesses to take on additional employees and train them in the trades that we need. Plumbers, electricians and other trades would really benefit from apprenticeships and similar types of training.

I thank the hon. Member for St Albans (Daisy Cooper), who spoke about the need for small businesses to be better supported, particularly by the Treasury, in dealing with the bureaucracy. She said that small businesses do not have the advantage of large HR functions or support networks to get them through the bureaucracy.

I thank my hon. Friend the Member for Grantham and Bourne (Gareth Davies) for his points. He said that three fifths of employment in this country is in a small business, and that, particularly over the last year, businesses have had to contend with significant challenges posed by the new Government’s economic plan, including the national insurance hike, the business rates increase and the additional burdens placed on businesses by the Employment Rights Bill.

Question put and agreed to.

Resolved,

That this House has considered the impact of the VAT registration threshold on SMEs.