Thousands of UK small businesses are continuing to deliberately restrict their growth to stay below the £90,000 VAT threshold.
HM Revenue & Customs data shows that the number of firms earning under the VAT threshold increased to 683,700 in 2025, up from 671,100 the year before. At the same time, the number of businesses earning just above the threshold, with turnover between £90,000 and £150,000, fell from 306,300 to 280,400.
Accountancy firm Lubbock Fine said the figures indicate that the VAT system is distorting business behaviour because thousands are choosing to suppress growth rather than deal with the tax and administrative burden of VAT compliance.
Examples of actions founders are taking include tourism businesses closing for winter, shops reducing opening hours or closing on quieter days and tradespeople working four-day weeks.
The study said the government should raise the threshold to £115,000 to catch up with inflation.
Jaspal Dhillon from Lubbock Fine said:
“Raising the VAT threshold would remove a clear block on growth. It would ensure the administrative and cost burden of VAT falls on businesses with the scale and cashflow to absorb it, rather than holding back smaller firms at the point they are trying to grow.
“The VAT threshold has become a clear brake on growth for small businesses. Instead of expanding, firms are making decisions based on how to stay under an arbitrary limit.”