Autumn Budget 2025: Potential changes to VAT?
As part of their manifesto in the build up to last year’s General Election, the Government promised that they would not increase taxes on working people, meaning they will not increase National Insurance, Income Tax, or VAT rates. Despite this, there are still rumours circulating about possible changes to Capital Gains Tax, Inheritance Tax, National Insurance and VAT.
The main VAT related announcement in last year’s Budget was the confirmation that it would be introduced on private school fees from January 2025, and there are more VAT related announcements predicted for November’s address.
VAT registration thresholds
Currently, businesses with a turnover of less than £90,000 don’t have an obligation to register for VAT, and consequently they don’t have to charge or account for VAT on their supplies and activities. There have been suggestions that the threshold could be reduced to £30,000, which could enable the Government to raise £2bn annually by the 2029/2030 tax year by bringing more businesses into the scope of VAT.
An alternative position is for the VAT threshold to be frozen. This could lead to more businesses exceeding the £90,000 registration limit over time (as they generate more revenue) as an effect of inflation. We understand that most small businesses would prefer the registration limit to be increased to allow them to operate for a longer period of time without the burden of VAT administration and the need to increase the price of their supplies.
VAT rates
In view of the Government’s manifesto pledge, we believe the VAT rate of 20% will stay the same. However, it’s worth noting that an increase in the rate of VAT would result in additional revenue (£8bn for a 1% rate increase). There is speculation that we could see some changes being made to the reduced 5% and zero rates.
The reduced 5% rate is applied to items and services such as gas and electricity for domestic use and safety equipment such as car booster seats. Could this be increased to generate additional revenue? Conversely, the Government could also reintroduce reduced rates to help struggling sectors, as it did during COVID times for the hospitality sector.
Simplify and amend complex rules
VAT rules are complex and confusing, and there are regularly changes and refinements to the liability of activities and supplies. The Government could help businesses by making VAT rules clearer and simpler to understand. They could amend VAT recovery rules to allow key sectors and services (care, welfare and education) to claim back more of the VAT they incur. This could have a knock on benefit of reducing the funding Government allocates to these sectors. However, they could also look to change the VAT status of exempt and zero-rated activities - as they did with private education to raise additional revenue.
VAT on private hire vehicles consultation
The previous Government launched a consultation on how VAT is treated on private hire vehicles. This completed last year with the announcement at the 2024 Budget that it was considering responses and would comment in due course. It has been speculated that the response to this consultation could be included in the Autumn Budget.
VAT exemption for gambling
It has been documented that the Chancellor is looking at the possibility of increasing gaming duty, with some suggesting it may increase from 21% to 50%. Conversely, the Government could instead decide to completely remove the VAT exemption from which the sector currently benefits.
Join our post-Budget briefing
The Chancellor’s address will bring all speculation to an end, and to help business leaders navigate any changes, we are hosting a live webinar following the Budget. We’ll unpack:
- The key announcements affecting businesses
- Practical implications for financial strategy
- Where opportunities remain and what actions to take next
Date: Friday 28 November
Time: 11:00 – 12:30
Format: Live webinar with Q&A session
Time: 11:00 – 12:30
Format: Live webinar with Q&A session
Register now to secure your place and ensure your business is ready to respond with confidence.
We’re here to help
VAT is a major outlay for businesses and not-for-profit organisations, with it potentially hugely impacting cashflow and profits. There are a number of actions that can be taken to ensure the VAT position is optimised and cashflow improved.
Our VAT specialists have years’ of experience helping clients to plan effectively and proactively address any risks they face. Some of the ways we can help include:
- Confirming and implementing the most effective and efficient VAT accounting procedures.
- Confirming the VAT and Customs duty position of imports and exports
- Confirming your overseas VAT liabilities and helping you to meet them
- Minimising the cost of VAT incurred on expenditure
- Maximising the recovery of VAT
- Identifying cash flow savings and advantages
- Ensuring the VAT classification of income and activities is correct and not open to challenge or question
- Assisting you in communications with HMRC
- Performing VAT healthchecks to ensure compliance and in advance of property or corporate transactions
- Providing staff training on the application of VAT on your business
If you would like to know more about how we can help, or have any questions on VAT or Customs Duty and Excise, please get in touch with one of our specialist VAT advisers via the form below.
