VAT threshold increase, extra resources for HMRC and changes to HICBC

by | Mar 6, 2024 | Other business, Tax, Technical, VAT

The Chancellor announced an increase in the VAT registration threshold from £85,000 to £90,000 with effect from 1 April 2024. This is the first increase since 2017, so that’s seven years of the threshold not keeping up with rising prices, meaning more SME’s will have been brought under the VAT net over that period. Mr Hunt commented that the increase would bring “tens of thousands of businesses” out of paying VAT altogether, encouraging them to invest in growth. The increase is likely to be good news for the self-employed and small businesses, particularly those that are purposely teetering below the current threshold to avoid having to register for VAT.  Not having to register for VAT is especially important for businesses whose clients are private individuals who, unlike most businesses, are unable to recover VAT they incur and are not willing to accept a 20% hike in the price of their gardener, for example. The UK continues to have one of the highest VAT registration thresholds in the OECD.  VAT receipts for 2024-25 are expected to be £203 billion, second only to income tax (£303 billion).

Whilst the increase in the VAT registration threshold might be seen as a positive measure, what would also be a very welcome is if HMRC had sufficient resource to not lose VAT registration application forms (or other documentation) when submitted, and if they were processed within a reasonable / short period of time instead of taking months and months.

On this front, Mr Hunt has announced new funding to provide HMRC with the ‘resources it needs’.  We hope these resources not only deal with chasing those who have not paid their tax, but also extend to extra staff for picking up the phone and dealing with queries!

And talking of HMRC and their current administrative shortcomings, it begs the question of how on earth will they deal with the proposed changes to be introduced to the high-income child benefit charge (HICBC).

The changes are aimed at addressing some of what is understood to be an unfair aspect of the charge that causes pain for many families, particularly as the HICBC has not increased with inflation since it was introduced in 2013. For example, a couple living together and both earning £49,000 will receive full child benefit, whereas a single parent earning £51,000 has some of their child benefit clawed back by the HICBC and the child benefit is entirely withdrawn once they earn £60,000 or more. The forthcoming changes will require significant reforms to the tax system and will move the HICBC to a household-based system instead of the current individual tax based system. Many things will need to be considered before the changes come into effect, including how a ‘household’ will be defined. Fortunately for HMRC, the changes are not expected to take effect until April 2026. As that is quite a while away, the HICBC will increase from £50,000 to £60,000 this April.

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