PolicyLens

Methodology note

Raise VAT threshold to GBP 150,000: calculation note

Assumptions behind the Raise VAT threshold to GBP 150,000 scenario. Implementation detail is incomplete, so uncertainty is explicit.

View main policy page: Raise VAT threshold to GBP 150,000

Central fiscal result

+GBP 3.0bn - Net fiscal impact in 2027-28

Low case: +GBP 1.0bn. High case: +GBP 6.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

  • VAT threshold rises from GBP 90,000 to GBP 150,000.
  • The scenario follows the 2024 Contract detail.
  • No tapered VAT entry is modelled.
  • The live page gives broad business-tax language.

Affected population

  • Affected units are firms near GBP 90,000 to GBP 150,000 turnover.
  • Microbusinesses and sole traders are most exposed.
  • Consumers may benefit if VAT savings pass through.
  • VAT-registered competitors may face price pressure.

Gross impact

  • Central cost is GBP 3bn from turnover moving outside VAT.
  • Low case assumes limited eligible turnover and growth gains.
  • High case assumes stronger deregistration and bunching.
  • No precise HMRC microdata were available.

Fiscal build-up, central case

  • VAT receipts lost: +GBP 3.2bn
  • Compliance-cost relief offset: -GBP 0.2bn
  • Administration: +GBP 0.0bn
  • Administration and uncertainty: +GBP 0.0bn

Central net impact: +GBP 3.0bn in 2027-28.

Behaviour and pass-through

  • Low case assumes firms expand enough to offset part of receipts loss.
  • Central case assumes the threshold cliff moves upward.
  • High case assumes significant bunching below GBP 150,000.
  • Price pass-through is consumer benefit, not fiscal offset.

Phasing

  • 2026-27: +GBP 0.4bn. Preparation or partial implementation.
  • 2027-28: +GBP 3.0bn. Main scenario year.
  • 2028-29: +GBP 3.2bn. Behaviour and pass-through develop.
  • 2029-30: +GBP 3.4bn. Steady-state uncertainty persists.

Main source groups

  • S1: Reform Contract specifies GBP 150,000 threshold.
  • S2: GOV.UK confirms current GBP 90,000 threshold.
  • S3: DBT business counts frame affected firms.
  • S4: VAT literature warns about threshold distortions.
  • S5: HMRC microdata would be needed for precision.
  • S6: VAT-threshold studies inform bunching, compliance and growth-distortion assumptions.