Businesses curb growth to duck VAT threshold, HMRC data suggests

Businesses curb growth to duck VAT threshold, HMRC data suggests

Small businesses are said to be closing on quiet days or splitting up operations so as not to go over the £90,000 turnover limit

Guy Taylor, Retail Correspondent

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Monday March 02 2026, 12.01am GMT, The Times

Economics

Personal finance

Tax

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Small businesses are increasingly restricting their growth to avoid being dragged over the £90,000 VAT threshold, new figures suggest.

Data from HM Revenue & Customs (HMRC) shows the number of British businesses earning under the tax threshold increased to 683,700 in the year ending December 2025, up from 671,000 the year before. In the same period the number earning just above with turnover of between £90,000 and £150,000 declined to 280,400 from 306,300.

Lubbock Fine, an accountancy firm, said that the figures suggested thousands of businesses were deliberately suppressing their growth to avoid the additional tax and administrative burden of complying with VAT.

VAT, or value added tax, is a 20 per cent charge on most goods services in the UK, which businesses must register for once their reported annual taxable turnover exceeds £90,000. Filing returns can be a lengthy process and often requires additional advice and accounting support.

Small and medium-sized businesses are already grappling with a tough macroeconomic backdrop including higher employment costs, soaring energy bills and constrained consumer spending. A key assessment of the economy will be delivered at the spring forecast tomorrow.

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To remain below the VAT threshold, some businesses such as shops and cafés are said to be reducing opening hours or closing on quieter days, while tradespeople are shifting to four-day working weeks. Other steps taken include “business splitting”, where owners separate operations into different entities to reduce reported turnover.

In February a report from the business and trade committee called for a review of the UK’s “cliff-edge” VAT threshold, which it said was “actively discouraging” companies from expanding, particularly in labour-intensive industries. It was raised for the first time in seven years in 2024 by the last Conservative administration.

There is a lack of consensus among experts about how to reform VAT. The Resolution Foundation, a think tank, has said that lowering the threshold to about £30,000 would raise £2 billion extra for the government per year.

Jaspal Dhillon, VAT partner at Lubbock Fine, argued that the government should increase the threshold to £115,000 in line with inflation. “It would ensure the administrative and cost burden of VAT falls on businesses with the scale and cashflow to absorb it, rather than holding back smaller firms at the point they are trying to grow,” he said.

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