How the 2024 VAT Threshold Rise Impact Small Businesses in UK?

The UK government will introduce a significant change to the VAT system in 2024 by raising the VAT registration threshold in annual turnover. The change is expected to positively impact small businesses in UK, allowing them to delay VAT registration, which can often be a growth barrier. Instead of focusing on compliance, these businesses can now redirect their attention and resources toward scaling operations and fostering innovation. The new threshold provides relief to businesses that would have otherwise been caught in the VAT net, enabling them to maintain their competitive edge.

  VAT Threshold Rise Impact Small Businesses in UK

• Increased VAT Registration Threshold: Small businesses with an annual turnover below £90,000 will no longer need to register for VAT. By not having to deal with VAT registration, these businesses can reduce the time and effort spent on administrative tasks, such as maintaining detailed VAT records and filing returns. This reduction in compliance responsibilities can free up resources that businesses can redirect towards growth-oriented activities.
  
  
  

• Deregistration Threshold Increase: The increase in the VAT deregistration threshold from £83,000 to £88,000 provides businesses with turnover around the threshold the option to deregister for VAT if their turnover drops below £88,000. This flexibility allows businesses to better manage their cash flow and tax obligations, potentially reducing their overall tax burden. It can also simplify financial planning for businesses that prefer to operate without the complexities of VAT administration.
  
  
  

• Reduced Administrative Burden: The new thresholds are expected to affect approximately 28,000 small businesses across the UK. By no longer needing to register for VAT, these businesses will see a significant reduction in their administrative workload. This includes not having to prepare and submit quarterly VAT returns, which can be time-consuming and complex. The government estimates that these changes will result in a collective saving of around £5 million per year in administrative costs for these businesses, allowing them to allocate resources more efficiently.
  
  
  

• Financial Relief for Small Businesses: Businesses that find themselves just below the new £90,000 threshold will benefit from not having to charge VAT on their goods and services. This exemption from charging VAT can make these businesses more competitive compared to those that are VAT-registered. Small companies can offer more attractive pricing to their customers by not adding VAT to their prices, potentially increasing sales and market share. This financial relief can be especially beneficial in industries where price competition is fierce. Impact Small Businesses in UK: The ability to avoid VAT charges can provide significant competitive advantages and boost growth opportunities for smaller businesses.
  
  
  

• Encouragement for Business Growth: Businesses can grow their revenue by an extra £5,000 thanks to the increased threshold without having to register for VAT. This change encourages small businesses to pursue growth opportunities without the immediate concern of crossing the VAT threshold, allowing them to focus more on growth and less on compliance. With the freedom to expand their turnover by an extra £5,000 before facing VAT obligations, businesses can invest in new products, services, or markets, fostering innovation and expansion. This can be a crucial factor for small businesses looking to scale up gradually without the added pressure of VAT compliance.
  
  
  

Conclusion

By reducing the number of businesses required to register for VAT, the government is helping to lessen the administrative burden and allowing small business owners to focus more on growing their enterprises. The increased thresholds also provide more flexibility for businesses to manage their VAT status, looking to develop or stabilize their operations.

For small businesses looking to navigate these changes and manage their VAT obligations effectively, professional assistance can be invaluable. Meru Accounting offers expert accounting services that can help businesses adapt to the new thresholds, ensuring compliance while focusing on growth. Whether you need help with VAT registration, deregistration, or general financial management, Meru Accounting can provide the support you need to thrive in this evolving business environment.