Businesses face VAT blow under Labour adviser’s plan

A FORMER top civil servant who is advising Labour on tax has suggested that the threshold for VAT registration should be halved in a move which would hit hundreds of thousands of small businesses.

Sir Edward Troup, a former head of HMRC, said lowering the threshold would have “been a better way to remove a barrier to growth” than the Government’s recent choice to raise it.

Labour announced earlier this month that Sir Edward would be advising the party on “improving tax compliance” and “modernising” HMRC.

In March’s Budget, Jeremy Hunt increased the VAT threshold from £85,000 to £90,000.

The Chancellor said the change would “reduce the administrative and financial impact” of the tax and it “bring tens of thousands of businesses out of paying VAT altogether and encourage many more to invest and grow”.

However, the move was criticised at the time by Sir Edward. Responding to the news on X, formerly Twitter, he said: “Halving the threshold would have been a better way to remove a barrier to growth.”

Drastically lowering the threshold in such a way would result in hundreds of thousands of additional small businesses having to charge VAT.

According to one set of costings seen by The Sunday Telegraph, lowering the threshold to £50,000 – a figure close to Sir Edward’s suggestion – would mean 351,000 more businesses having to register in 2025-26.

Sir Edward and others have argued for the threshold to be lowered on the basis it is high by international standards, and because there is evidence small businesses limit their annual turnover to avoid having to register.

However, Nigel Huddleston, the Financial Secretary to the Treasury, said: “This is further proof that Labour are not serious about cutting taxes for businesses and working people. Labour would take us back to square one by hammering businesses with tax rises.”