As Autumn Statement 2025 approaches, reports suggest that the government may raise the VAT registration threshold from £90,000 to £100,000.
There are also reports to the contrary, stating that chancellor Rachel Reeves will decrease the VAT registration threshold. We will assess the implications for contractors if those conflicting reports are correct next week on ContractorUK.
A pro-growth signal from Rachel Reeves?
But as far as the rumoured increase is concerned, after years of frozen limits, such a hike in the VAT threshold would ease pressure on smaller businesses and send a pro-growth signal.
For most limited company contractors, the benefits of a VAT threshold increase would be indirect but welcome, writes Kerry Newman, director at SG Accounting – specialists in contractor tax and accounting.
Smoothing the VAT threshold cliff-edge
The UK's threshold is already among the highest in the world. Yet many small companies still "bunch" just below it, limiting turnover to avoid VAT registration and the admin that follows.
Raising the limit even modestly would push that cliff-edge higher. Some businesses currently hovering near £90,000 could step back from the VAT system entirely, freeing time and cash to reinvest in growth.
For limited company contractors, the impact would be subtler: fewer micro-suppliers gaming the system and a healthier overall market dynamic.
Competitive breathing space
Most contractors are already VAT-registered by choice, reclaiming VAT on expenses and have the option of using the Flat Rate Scheme (FRS).
If fewer small firms remain trapped just under the £90k line, price competition becomes fairer. Unregistered freelancers would no longer enjoy quite the same 20 per cent undercut advantage when dealing with non-VAT-registered clients.
A higher threshold could therefore reinforce VAT registration as a mark of professionalism, distinguishing established limited companies from occasional freelancers.
Cautious optimism
Contractor industry commentators have welcomed talk of an increase — but with caveats. A jump of £10,000 is symbolic more than transformative. It won't erase the distortions created by the cliff-edge or radically alter behaviour across the sector.
Still, symbolism matters. For contractors facing complex rules like IR35 and digital reporting, even a small simplification hints at a more pragmatic approach to small business taxation.
Relief in MTD compliance
Fewer compulsory VAT registrations would lighten HMRC's administrative load under Making Tax Digital (MTD).
That could mean quicker responses, fewer backlogs and slightly less red tape for those who remain inside MTD — a quiet gain for already-compliant contractors.
It could also ease the constant fear of accidental threshold breaches that many small suppliers face each year.
Flat Rate stability
An increase would make sweeping reform of the FRS less likely in the near term.
With fewer new entrants and less churn, the Treasury would have less incentive to intervene.
That'd be good news for contractors who rely on the FRS for predictability.
A calmer VAT landscape?
Ultimately, a higher threshold wouldn't change how VAT-registered personal service company contractors operate day-to-day.
But it would stabilise the environment around them: fewer competitors tiptoeing near the limit, less administrative pressure, and clearer separation between small traders and incorporated professionals.
For contractors familiar with navigating almost constant tax change, a little stability could be the best Autumn Budget news of all. Only time will tell, and there's not long to wait.
