Chancellor Considers Raising VAT Threshold as Part of Economic Growth Plan

Chancellor Rachel Reeves is weighing up changes to the VAT regime as she prepares her second Budget, with reports suggesting she may raise the threshold at which businesses begin paying VAT.

The current threshold of £90,000 has long been criticised by small business groups, who argue that it discourages growth by forcing operators to limit turnover in order to avoid triggering VAT obligations.

NFFF President, Andrew Crook said: “We are pleased that the government are recognising that the current VAT system is inhibiting growth and would welcome the opportunity to work with them alongside other stakeholders to help design a system that works for the sector. The current system is outdated and not fit for purpose and without urgent change many good businesses and the jobs they provide are under threat”

According to The Telegraph, Whitehall officials have proposed lifting the threshold as a “growth measure”, while other voices in government argue for the opposite approach. Torsten Bell, Pensions Minister and formerly of the Resolution Foundation think tank, is understood to favour reducing the threshold to around £30,000 – a move that would bring many more small firms into the VAT net.

The Federation of Small Businesses confirmed it has held discussions with government about raising the threshold, which it believes could help unlock growth and deliver increased tax revenues in the long term.

Independent operators in particular often face tight margins, rising costs and tough competition with larger chains. A higher VAT threshold could give shops more breathing space to expand without the immediate hit of additional tax burdens. Conversely, a lower threshold would risk pulling thousands more independents into the VAT system, increasing costs and administrative pressures.

Reeves is also reported to be considering new levies on the gambling industry to help fund wider social policies, including the possible removal of the two-child benefit cap. However, concerns have been raised by Britain’s seaside amusement arcades, who warn they may be unfairly grouped with major online gambling firms, threatening the sustainability of local family businesses.

With the Chancellor set to return to Parliament warning that the economy is “stuck”, productivity and growth are expected to be the central focus of the upcoming Budget. The NFFF will continue to monitor developments closely to ensure the voices of fish and chip operators are represented in these crucial decisions.