Autumn Budget 2025: Are VAT changes on the horizon?

As the Autumn Budget approaches, there’s growing talk that the government may look to VAT to raise extra revenue. For small businesses and entrepreneurs, any adjustment to VAT rules or thresholds could have a direct impact on pricing, cash flow, and compliance. Here’s what might be coming, and how to prepare.

What might change

A few possibilities are being discussed ahead of the Budget:

• Reducing or removing reduced rates on items currently taxed at 0% or 5%, such as food, domestic energy, children’s clothing, or books.

• Introducing VAT on private taxis and ride-sharing platforms, bringing them in line with traditional operators.

• Withdrawing VAT exemptions, particularly in areas like private healthcare or financial services.

• Lowering the VAT registration threshold from its current £90,000, which would pull more small businesses into the VAT system.

Why VAT is under the spotlight

According to the Institute for Fiscal Studies, VAT exemptions and reduced rates cost the government over £100 billion a year in lost revenue. These reliefs are intended to make essentials more affordable, but they often benefit higher-income households just as much.

A likely focus - the VAT threshold

The UK’s VAT registration threshold of £90,000 is one of the highest in the world. Cutting it to around £60,000 would increase the number of VAT-registered businesses and raise more tax.

However, the trade off is that smaller businesses would face new administrative costs and potentially higher prices for customers. Some business owners might even scale back their activity to stay under the limit, which is something already seen under the current threshold.

How small businesses can prepare

If a lower VAT threshold is announced in the Autumn Budget, small businesses should start planning now rather than waiting for the change to take effect.

Track your turnover - keep a close eye on sales and forecast ahead. If you’re likely to exceed the £90,000 threshold within the next year, start preparing for VAT registration early.

Communicate clearly - if prices do rise, explain the reason to your customers. (psst - we have some ready to use template wording you can download for free, here)

Review your pricing - think about how VAT would affect your prices and competitiveness. If most of your customers aren’t VAT registered, you may need to absorb some of the cost to stay attractive.

Tidy your books - crossing the threshold means quarterly VAT returns and digital record keeping. Make sure your accounting software or accountant can handle the extra admin.

Plan your approach - voluntary registration can give you more control and time to adjust your systems and communication. Talk to your accountant about options like the Flat Rate or Cash Accounting schemes.

Final thoughts

A lower VAT threshold or reduced-rate reform may not grab headlines, but for small businesses, it could have a real impact on pricing, profit margins, and day-to-day admin. Be sure to stay informed, plan ahead, and make sure your systems are ready to adapt quickly once the Autumn Budget announcements are made.