Would you be under the VAT line in the government's new budget? Here’s what you need to know

With the Autumn Budget approaching, speculation is growing around potential changes to the VAT registration threshold. One proposal gaining traction is a significant drop in the threshold — possibly to £30,000 in 2027.

If you’re a sole trader or small business owner, this could have major implications for how you manage your finances and whether you’ll need to register for VAT sooner than expected.

What is the VAT threshold?

The VAT threshold is the point at which a business must register for VAT with HMRC. Currently, it stands at £90,000 in taxable turnover over a 12-month period. Once you cross that line, you’re required to:

• Charge VAT on your goods or services
• Submit VAT returns, usually every quarter
• Keep digital records in line with Making Tax Digital (MTD) rules

What’s changing in the budget?

Although not yet confirmed, there is talk of the VAT threshold being reduced to £30,000. This would bring many smaller businesses into the VAT system — including sole traders and micro businesses that currently fall well below the existing threshold.

The change is being discussed in the context of wider tax reform and the rollout of MTD for Income Tax, which is set to begin in April 2026.

Would you be affected?

If your business earns between £30,000 and £90,000 annually, you may soon need to:

Register for VAT with HMRC
Start charging VAT to customers
Submit quarterly VAT returns
Use MTD-compatible software to manage your records

This could mean changes to your pricing, invoicing, and accounting processes — especially if you’ve never dealt with VAT before.

What should you do now?

Even though the changes haven’t been confirmed, it’s worth preparing:

• Review your turnover – Check your rolling 12-month figures to see if you’re close to the proposed threshold.
• Speak to your accountant – They can help you understand the impact and plan for registration if needed.
• Explore software options – If you’re not already using digital tools, now’s the time to look into MTD-compatible platforms.

If the VAT threshold drops to £30,000, many small businesses will need to register for VAT for the first time. While this may feel like an added burden, it’s also an opportunity to get ahead of the curve and ensure your business is ready.

If you’re unsure whether you’ll be affected, or what steps to take, now is the time to speak to an accountant who understands the needs of small businesses.