To ask the Chancellor of the Exchequer, what recent assessment his Department has made of the potential impact of the VAT registration threshold on the net revenue growth of SMEs.

To ask the Chancellor of the Exchequer, what recent assessment his Department has made of the potential impact of the VAT registration threshold on the net revenue growth of SMEs.

To ask the Chancellor of the Exchequer, what assessment his Department has made of the potential impact of proposed changes to online marketplace VAT liability on small businesses that purchase second hand goods from private individuals for resale.

To ask the Chancellor of the Exchequer, what assessment his Department has made of the potential impact of proposed changes to online marketplace VAT liability on small businesses that purchase second hand goods from private individuals for resale.

To ask the Chancellor of the Exchequer, what assessment she has made of the potential impact of increasing the VAT registration threshold on small businesses; and if she will consider raising the VAT registration threshold to support entrepreneurs.

To ask the Chancellor of the Exchequer, what assessment she has made of the potential impact of increasing the VAT registration threshold on small businesses; and if she will consider raising the VAT registration threshold to support entrepreneurs.

To ask the Chancellor of the Exchequer, what steps her Department is taking to ensure that the business rates system is supportive of SMEs; what assessment she has made of the potential merits of reducing VAT rates for smaller and medium sized businesses; whether she is planning to take steps...

To ask the Chancellor of the Exchequer, what steps her Department is taking to ensure that the business rates system is supportive of SMEs; what assessment she has made of the potential merits of reducing VAT rates for smaller and medium sized businesses; whether she is planning to take steps...

To ask the Chancellor of the Exchequer, what assessment she has made of the potential merits of reducing VAT rates for small hospitality businesses.

To ask the Chancellor of the Exchequer, what assessment she has made of the potential merits of reducing VAT rates for small hospitality businesses.

To ask the Chancellor of the Exchequer, what support she is providing to small hospitality businesses, including cafés, for VAT costs.

To ask the Chancellor of the Exchequer, what support she is providing to small hospitality businesses, including cafés, for VAT costs.

To ask the Chancellor of the Exchequer, pursuant to the Answer of 30 March 2026 to Question 122630 on Business: VAT, whether her Department has made an assessment on the effect that inflation has had on small business' ability to stay under the VAT threshold over the past decade.

To ask the Chancellor of the Exchequer, pursuant to the Answer of 30 March 2026 to Question 122630 on Business: VAT, whether her Department has made an assessment on the effect that inflation has had on small business' ability to stay under the VAT threshold over the past decade.

Businesses are required to register for VAT if their turnover of taxable goods and/or services is above a given threshold. This note discusses how the registration threshold has been set in recent years and the debate there has been about whether the threshold is too high or too low.

Businesses are required to register for VAT if their turnover of taxable goods and/or services is above a given threshold. This note discusses how the registration threshold has been set in recent years and the debate there has been about whether the threshold is too high or too low.

To ask the Chancellor of the Exchequer, what estimate her Department has made of the administrative burden to the Treasury of processing VAT receipts for Businesses with a turnover under £250,000.

To ask the Chancellor of the Exchequer, what estimate her Department has made of the administrative burden to the Treasury of processing VAT receipts for Businesses with a turnover under £250,000.

To ask the Chancellor of the Exchequer, what estimate her Department has made of the average time spent by businesses with turnover below £250,000 on VAT compliance, including preparing returns and maintaining records.

To ask the Chancellor of the Exchequer, what estimate her Department has made of the average time spent by businesses with turnover below £250,000 on VAT compliance, including preparing returns and maintaining records.

To ask the Chancellor of the Exchequer what estimate her Department has made of the administrative cost of processing and submitting VAT returns to to businesses with a turnover under £250,000.

To ask the Chancellor of the Exchequer what estimate her Department has made of the administrative cost of processing and submitting VAT returns to to businesses with a turnover under £250,000.

To ask the Chancellor of the Exchequer, what assessment she has made of the potential impact of the VAT registration threshold on small charities that generate income through educational public engagement activities.

To ask the Chancellor of the Exchequer, what assessment she has made of the potential impact of the VAT registration threshold on small charities that generate income through educational public engagement activities.

The government will implement Making Tax Digital for income tax in April 2026 for the self-employed and landlords with qualifying income above £50,000.

The government will implement Making Tax Digital for income tax in April 2026 for the self-employed and landlords with qualifying income above £50,000.

My Lords, the data referred to does not show that an increasing number of small businesses in the UK are earning below the VAT threshold. It shows only the number of voluntarily VAT-registered businesses below the VAT registration threshold of £90,000 and does not include unregistered businesses. Of the 5.8 million businesses in the UK, 2.3 million are registered for VAT and 3.5 million are unregistered.

My Lords, the data referred to does not show that an increasing number of small businesses in the UK are earning below the VAT threshold. It shows only the number of voluntarily VAT-registered businesses below the VAT registration threshold of £90,000 and does not include unregistered businesses. Of the 5.8 million businesses in the UK, 2.3 million are registered for VAT and 3.5 million are unregistered.

I thank the Minister for his reply, but we have double trouble. First, an increasing number of registered small businesses are earning less than the VAT threshold of £90,000. Secondly, there has been a big drop in those earning £90,000 to £150,000—in fact, there was a decline of 26,000 businesses in the year 2025. Is that because some are deliberately suppressing their growth to avoid the additional tax and admin burden of complying with VAT, or is it because higher employment costs and taxation have choked off their incentive to grow? Either way, it is surely time to reset this threshold.

I thank the Minister for his reply, but we have double trouble. First, an increasing number of registered small businesses are earning less than the VAT threshold of £90,000. Secondly, there has been a big drop in those earning £90,000 to £150,000—in fact, there was a decline of 26,000 businesses in the year 2025. Is that because some are deliberately suppressing their growth to avoid the additional tax and admin burden of complying with VAT, or is it because higher employment costs and taxation have choked off their incentive to grow? Either way, it is surely time to reset this threshold.

I am grateful to the noble Lord for his question. It is neither of the things that he set out. As I have said, the data cited by the noble Lord relates only to VAT-registered businesses and does not include unregistered businesses, so I do not think it shows what the noble Lord claims that it shows. If a business is already registered for VAT, it has no incentive to suppress turnover to avoid VAT, because it is already charging VAT and would need to continue to do so even below the threshold. Why would they do what the noble Lord suggested? That would not make any sense. If he looks at a longer time series of this data, he will clearly see that it moves around significantly, so the conclusions he is trying to draw are very difficult to sustain.

I am grateful to the noble Lord for his question. It is neither of the things that he set out. As I have said, the data cited by the noble Lord relates only to VAT-registered businesses and does not include unregistered businesses, so I do not think it shows what the noble Lord claims that it shows. If a business is already registered for VAT, it has no incentive to suppress turnover to avoid VAT, because it is already charging VAT and would need to continue to do so even below the threshold. Why would they do what the noble Lord suggested? That would not make any sense. If he looks at a longer time series of this data, he will clearly see that it moves around significantly, so the conclusions he is trying to draw are very difficult to sustain.

My Lords, if the Minister could open his mind beyond the data of the Question, there is no shortage of studies from very reputable organisations—the IMF, the OECD and others—that there is significant bunching around a threshold, and that is not a surprise. Where they do not agree is whether the brake on growth would be improved by raising or lowering the threshold. Can the Minister tell your Lordships’ House that the Treasury will not succumb to a Goldilocks effect and conclude that, because some say it should be higher and others say it should be lower, it is happy to leave it where it is? Can

he assure us that sensitivity studies are being run to look at where the threshold should be? Getting it right will open up more growth.

My Lords, if the Minister could open his mind beyond the data of the Question, there is no shortage of studies from very reputable organisations—the IMF, the OECD and others—that there is significant bunching around a threshold, and that is not a surprise. Where they do not agree is whether the brake on growth would be improved by raising or lowering the threshold. Can the Minister tell your Lordships’ House that the Treasury will not succumb to a Goldilocks effect and conclude that, because some say it should be higher and others say it should be lower, it is happy to leave it where it is? Can

he assure us that sensitivity studies are being run to look at where the threshold should be? Getting it right will open up more growth.

I am very happy to open my mind in response to the noble Lord’s question. The existence of bunching around the VAT threshold is well established and has been analysed by the Office for Budget Responsibility. The OBR has explained that, where a registration threshold exists, some firms will cluster just below it to avoid the administrative and pricing consequences of entering the VAT system. That is an inevitable consequence and recognised feature of a threshold-based tax system. He will know that decisions on tax and thresholds are taken only at fiscal events. Raising the threshold further would reduce burdens for some firms, but it would also carry significant fiscal cost. The UK threshold is already high by international standards. The UK threshold of £90,000 compares to an average in OECD economies of £30,000. It could be argued, as I think the noble Lord is doing, that lowering the threshold could support growth by reducing the distortions created by the cliff edge of the threshold, but the Government are also mindful of the impact this could have on small businesses.

I am very happy to open my mind in response to the noble Lord’s question. The existence of bunching around the VAT threshold is well established and has been analysed by the Office for Budget Responsibility. The OBR has explained that, where a registration threshold exists, some firms will cluster just below it to avoid the administrative and pricing consequences of entering the VAT system. That is an inevitable consequence and recognised feature of a threshold-based tax system. He will know that decisions on tax and thresholds are taken only at fiscal events. Raising the threshold further would reduce burdens for some firms, but it would also carry significant fiscal cost. The UK threshold is already high by international standards. The UK threshold of £90,000 compares to an average in OECD economies of £30,000. It could be argued, as I think the noble Lord is doing, that lowering the threshold could support growth by reducing the distortions created by the cliff edge of the threshold, but the Government are also mindful of the impact this could have on small businesses.

Is the Minister aware that, according to official statistics, 99.18% of all British businesses are defined as “small”—those with 50 employees or fewer. It sometimes seems, in the answers we get, that the Government have not quite understood that.

Is the Minister aware that, according to official statistics, 99.18% of all British businesses are defined as “small”—those with 50 employees or fewer. It sometimes seems, in the answers we get, that the Government have not quite understood that.

I fully understand that, and I am grateful to the noble Lord for reminding me of it. Last year, the Government published their plan for small and medium-sized businesses, setting out support for smaller firms. We are partnering with industry to unlock productivity growth through the adoption of digital technologies. We are legislating to tackle late payments, which cost the UK economy £11 billion a year. We have launched a new Business Growth Service to make it easier to access advice and support. We are making SMEs a national priority in our new procurement policy system. We are expanding the UK Export Finance capacity by £20 billion and creating a small export builder insurance product. I assure the noble Lord that we are very aware of the points he raises.

I fully understand that, and I am grateful to the noble Lord for reminding me of it. Last year, the Government published their plan for small and medium-sized businesses, setting out support for smaller firms. We are partnering with industry to unlock productivity growth through the adoption of digital technologies. We are legislating to tackle late payments, which cost the UK economy £11 billion a year. We have launched a new Business Growth Service to make it easier to access advice and support. We are making SMEs a national priority in our new procurement policy system. We are expanding the UK Export Finance capacity by £20 billion and creating a small export builder insurance product. I assure the noble Lord that we are very aware of the points he raises.