VAT Registration Threshold: SMEs

Debate between Peter Bedford and Robbie Moore

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.