The VAT registration threshold is not increasing this year, and has been frozen until April 2020 at £85,000.
Take for example a B&B with turnover of £83,000. They normally increase their rates by 3% each year to coincide with expected increases in expenses. If they do this, this would give them turnover of £85,490 which means they would then need to register for VAT. As their customers are mainly the general public, they won’t get away with increasing their prices for VAT as well. The cost for VAT for them would be £14,248, albeit they would have some vatable expenses that they can reclaim. In this situation it would not make any sense to increase their prices by 3%, however it also means they can’t increase their prices the following year either, which means profit would reduce.
The government is currently exploring whether the VAT registration threshold is disincentivising small businesses from growing.
Take the same example above, if the VAT registration threshold was much lower and they were already VAT registered, they would increase their prices each year and look at other ways to expand their business.
Louise Sim F.C.C.A