These are the standing rules and thresholds as of mid-2025:
VAT rates – tandard rate is 20%; reduced rate is 5% (for certain goods & services like home energy, children’s car seats, etc.); 0% applies to items like children’s clothing, most food, books, etc.
VAT registration threshold – A business must register for VAT if its taxable turnover exceeds £90,000 (or if it expects to exceed that threshold).
Late payment interest and penalties – Since 6 April 2025, HMRC increased the rate of late payment interest: now 4% above the Bank of England base rate. Also, the penalties for unpaid VAT tax/liabilities have been increased: from 2% to 3% after 15 days; same after 30 days; and from day 31 a steeper rate (from 4% to 10%) per annum.
Deregistration / final return timing – Amendments made under the VAT (Amendment) Regulations 2025 now give HMRC the power to extend deadlines for businesses submitting their final VAT return when deregistering, to account for delays.
Input tax recovery on investment costs / pension fund services – From 18 June 2025, HMRC’s policy changed: it no longer treats investment costs as “dual use” in certain pension fund contexts. That means in many cases, the employer / entity can recover all the input VAT incurred.
What’s under discussion / expected (possible changes on the horizon)
There are some proposals and pressures that may soon lead to further adjustments, especially in the upcoming Autumn Budget (due late November 2025). Things to keep an eye on:
Raising the VAT registration threshold
There are credible reports that HM Treasury is considering raising the registration threshold from £90,000 to £100,000.
Proponents argue this would ease administrative burdens on smaller businesses; critics point out that the revenue cost may be non-trivial and that the benefit is relatively modest for those just under the current threshold.
Broader adjustments to VAT reduced / zero-rates / exemptions
Labour’s government is reportedly looking at changes to what qualifies for the reduced (5%) or zero (0%) rates, or even narrowing some exemptions, to help address fiscal pressures.
There is also discussion about changing the scope of VAT on certain goods/services as part of “widening the VAT base.”
No big changes yet but risk in the Budget
The upcoming Autumn Budget (Nov 2025) is expected to address a “black hole” in public finances. Tax reviews are underway, and VAT is part of the conversation.
Any changes to rates or thresholds are likely to be sensitive, given the economic climate and inflation pressures. Businesses will be watching closely.