VAT Registration Threshold: SMEs

Robbie Moore 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.

--- Later in debate ---

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

It is a pleasure to serve under your chairmanship, Mr Vickers. I thank my hon. Friend the Member for Mid Leicestershire (Mr Bedford) for securing today’s important debate because, as he and my hon. Friend the Member for Broxbourne (Lewis Cocking) have illustrated, many of our small independent businesses have contacted us as their representatives about the challenge around the VAT threshold time and again.

The VAT threshold builds on the collective impact of all the budgetary changes that have been having a hugely detrimental—indeed, catastrophic—impact on our many family businesses. The increases in employers’ national insurance, minimum wage, business rates—crikey, the list goes on. That is before we start looking at other legislation that is coming down the line, such as the Employment Rights Bill, which is creating more uncertainty for employees, dare I say, because employers quite rightly will not want to take the risk of growing and expanding, with further regulation and legislation coming down the line.

Small businesses are the lifeblood of any prosperous community, and my constituency of Keighley and Ilkley is no exception. Keighley is home to many fantastic small high street businesses, as well as a number of nationally and internationally acclaimed manufacturers. Likewise, Ilkley boasts a fabulously good high street, which helped the town to be officially named the best place to live in the whole north of England, as rated by The Sunday Times. I am sorry to say that our many small businesses are under immensely increasing regulatory and tax pressures as we go forward. Whether because of the rise in budgetary pressures introduced by the Budget last year or VAT, the subject of this debate, those businesses are struggling right now to make ends meet, and the challenge continues.

The mighty British fish and chip shop is one sector that is particularly struggling, with rising input prices and uncertainty over supply chains. I am honoured to represent many fish and chip shops across Keighley and Ilkley, and was lucky enough meet a great constituent of mine, Dwaine Smith, and go along to Old Time Fisheries at the top of Devonshire Street in Keighley to sample the fine offering. He was keen to get across to me the absolute pressure that the fish and chip industry is facing as a result of the increased cost of fish and chips coming into the sector, as well as the increased pressures around employer’s national insurance, the minimum wage and the challenge around VAT thresholds. On a number of occasions I have spoken to the operator of Kirkgate Fisheries, in Silsden in my constituency, and he has raised the issue of VAT with me as the No. 1 challenge that he is facing. Bearing out what my hon. Friend the Member for Mid Leicestershire said, as an organisation it has actively looked at reducing the number of hours that it is open because of the challenges associated with VAT registration and the threshold that has been put in place.

We cannot be in a scenario where businesses are coming to us time and again, whether in the fish and chip industry or other sectors such as the wedding industry, as was referenced by my hon. Friend—it applies to every business—because they are being effectively constrained from growing and expanding because of the VAT registration challenges and the burden of the VAT threshold. It is sad to see popular, successful businesses in our communities having to commit acts of self-harm, not because they want to but because they have no other option available—they are forced to because of the increased taxes being put on their shoulders.

That brings me to the nub of the issue: this debate is about not just the level of the VAT threshold—although I am pleased to say that it rose steadily under the last Conservative Administration—but the hugely negative impact that the cost of VAT registration is having on the growth of many businesses in my constituency. It is not viable to sit just under the threshold, as has often been communicated to me by many of my constituents, and without further investment to get above it, businesses stagnate. That is the problem that we are actively seeing. I hope that the Minister will reference this cliff edge, which many of our hard-working businesses are facing, and that he will address how the Government plan to see the transition for businesses between VAT regimes.

I want to see businesses across Keighley, Ilkley, Silsden and the Worth valley thrive; I want to see families set up businesses that they have control of, that are pillars of the community and drive the local economy. Without doubt, they are the fabric of our communities. To do that, we must create a tax system that encourages expansion and growth. At the moment, the VAT threshold is a great filter to success. It is stagnating many of our businesses and constraining them from being able to grow at the speed they wish. At worst, many of our businesses are reducing their hours of operation and the amount of products that they are selling, because of the VAT threshold and the cost of VAT registration. This simply cannot continue. It is within the power of the Government to make that change, and I hope that the Minister is listening.

Finally, I would like to understand from the Minister whether any financial impact assessment has been made by this Government, not only on VAT but on the collective impact of those additional regulatory and financial burdens that have been put on hard-working businesses in our constituencies. I go door-knocking every week, speaking to residents and large and small businesses across my constituency. On the doorstep I openly ask people, 20% or 25% of the way into this Parliament—a year into this Government—to give me one thing that they feel the Government have delivered that has had a positive impact on their business. They cannot name one thing.

--- Later in debate ---

[James Murray]

I will turn to the questions that the hon. Gentleman and other hon. Members have raised about VAT reliefs in a moment, but I will first finish the point about where the VAT registration threshold is set, because that is an important part of the debate.

It is worth reflecting on the fact that views on the threshold are divided. The case for change has been regularly reviewed over the years, because some businesses argue that a higher threshold would reduce their administrative and financial burdens. However, other businesses contend that a lower threshold would provide a fairer competitive environment, for instance in the hair and beauty sector.

The Government’s approach to the VAT threshold and applicable rates aims to balance the potential impacts on small businesses, including their growth and financial sustainability, with the economy as a whole and, of course tax, revenues. Although the Government always welcome hearing businesses’ views about how the tax system operates, we are not currently planning to change the design of the VAT threshold.

More broadly on VAT, the Government often receive calls from businesses, and indeed from hon. Members, to examine the rate of VAT for specific industries. VAT is a broad-based tax on consumption and the 20% standard rate applies to most goods and services. VAT is the UK’s third largest tax and is forecast to raise £180 billion in 2025-26. Of course, tax breaks have an impact on the public finances and they must represent value for money for the taxpayer, so exceptions to the standard rate have always been limited and balanced against affordability considerations. The assessment of any new VAT relief should consider whether the cost saving is likely to be passed on to consumers.

Fundamentally, the best support that we can provide to small businesses is economic growth. Delivering secure, strong and sustainable growth to boost prosperity and living standards across the UK is the Government’s No. 1 mission, as set out in our plan for change. That is why, when we took office, we took the necessary decisions to provide the stability that is so important for investment and growth by tackling the £22 billion hole in the public finances that we inherited from the previous Government.

[Robbie Moore]

I struggle to understand how the Minister can come out with these pre-written speeches and expect anyone to believe him. How can he say that stability has now been put back into the wider economy when many hard-working businesses, including the SMEs that many hon. Members have talked about in this debate, are struggling to deal with the consequences of employer’s national insurance contributions rising; the consequences of VAT, which we are debating today; and the consequences of the Employment Rights Bill, which are coming down the line? Yet he still stands at the Dispatch Box and comes out with the bizarre claim that the Government have installed stability with their plan for change. That is nonsense.

[James Murray]

I think the hon. Gentleman must be forgetting the recent history of this country’s economy when his party was in charge, because the many small businesses that I have met are not clamouring for a return to the economic chaos that we saw under Liz Truss or the 14 years of economic stagnation that his party presided over. The stability that we restored to the public finances and to the economy is an essential prerequisite for investment and growth; indeed, it is the foundation on which economic growth can succeed.