The Government believes that the current design of the VAT registration threshold may be dis-incentivising small businesses from growing their business and improving their productivity. This was noted by the Office of Tax Simplification in their review of VAT published last year, who recommended that the Government examine the current approach to the VAT threshold.

A call for evidence explored the effect of the current threshold on small businesses, from which the Government would consider how to better incentivise growth.

CTG ‘s response to the VAT registration threshold call for evidence highlights the potential impact of any decrease in the VAT registration threshold. We suggested that it would be very helpful if charities were allowed to share resources, such as staff and IT, with their trading subsidiaries, without any charges for this counting towards the VAT registration threshold. Another solution would be to change the rules so that zero rated supplies do not contribute to the VAT registration threshold, with only positive rated supplies included. This would have a material impact on charities, owing to taxable supplies often being of books and other printed materials. The requirement for charities registered for VAT to comply with Making Tax Digital administrative requirements is also an important consideration.

The Government published a response to the call for evidence on the design of the VAT threshold, as the response to the call for evidence did not provide a clear option for reform. The VAT threshold will therefore be maintained at the current level of £85,000 until April 2022. The Government will look again at the possibility of introducing a smoothing mechanism once the terms of EU exit are clear. A Tax Information and Impact Note can be read here.

CTG welcomed this news, as had there been a decrease in the VAT threshold additional, smaller charities would have been subject to Making Tax Digital reporting requirements, which are already proving complex for larger charities.