Raise VAT threshold to GBP 150,000

Threshold baseline

The UK VAT registration threshold is GBP 90,000. Reform's 2024 Contract proposed GBP 150,000. That narrows the VAT base and moves the cliff higher rather than removing it.

• Current threshold is GBP 90,000.
• New threshold would be GBP 150,000.
• Small firms near the cliff gain most.

Core trade-offs

Small firms below GBP 150,000 gain lower admin burdens and possibly lower prices. The Exchequer loses VAT, and the growth cliff moves upward.

• Small businesses gain compliance relief.
• Treasury loses VAT receipts.
• Growth bunching may shift upward.

Illustrative fiscal impact

+GBP 1.0bn to +GBP 6.0bn. Central estimate: +GBP 3.0bn.

• Positive numbers mean public-finance pressure; negative numbers mean Exchequer savings.
• GBP 150k threshold is the main scale marker.
• Gross costs and receipt offsets are separated in methodology.
• Behaviour and pass-through widen the range.
• This is not an official costing.

Economic impact by 2027-28

• Jobs: May support microbusiness activity, but creates a higher cliff for expansion.
• Wages: No direct wage effect; owner-managed firms gain most.
• Prices: Some unregistered firms may cut prices; pass-through is uncertain.
• GDP / productivity: Likely mixed; lower admin helps, but VAT threshold distortions remain.

Assessment

Raising the VAT threshold helps small firms that want to stay outside VAT, but it does not fix the underlying cliff-edge problem. It may reduce admin burdens and support some microbusinesses, while encouraging others to cap sales below GBP 150,000. The productivity effect is mixed, not clearly positive.

Confidence: Low. The current threshold is clear, but turnover distribution and bunching behaviour determine the actual fiscal cost.

Main risks

• Bunching risk: More firms may cap sales below GBP 150,000 to avoid registration.
• Tax-base erosion: VAT receipts fall unless compliance or growth offsets are stronger than expected.
• Uneven competition: Registered firms compete with more unregistered rivals below the new threshold.

Safeguards

• Publish turnover-bunching evidence by sector.
• Consider smoothing VAT entry rather than raising the cliff.
• Review after two tax years with HMRC data.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology: Raise VAT threshold to GBP 150,000 Internal - PolicyLens, 2026
• Business population estimates 2025 Official statistics - Department for Business and Trade, 2025
• Economic and fiscal outlook: business rates receipts Fiscal forecast - Office for Budget Responsibility, 2026
• Increase to VAT registration threshold UK government guidance - HM Treasury and HMRC, 2024
• Direct effects of illustrative tax changes Official tax data - HM Revenue and Customs, 2026
• The Optimal Threshold for a Value-Added Tax Academic article - Keen and Mintz, Journal of Public Economics, 2004
• VAT Notches, Voluntary Registration, and Bunching: Theory and UK Evidence Academic article - Liu, Lockwood, Almunia and Tam, Review of Economics and Statistics, 2021
• Our Policies Party policy source - Reform UK, 2026

Other Reform UK policies

• Raise income-tax thresholds
• Cut household energy taxes
• Cut fuel duty by 20p
• Cut stamp duty below GBP 750,000
• Raise inheritance-tax threshold to GBP 2m
• Cut corporation tax to 15%
• Abolish IR35 rules
• Replace some high-street business rates