What the Creative Industries Need to Know About the VAT Threshold Changes in the Budget

The dust, such as it was, has settled on the 2024 Spring Budget, and for many self-employed individuals and small businesses (SMEs), one key, and low-key, announcement was an increase in the VAT registration threshold. There’s a few things to think about:

Value Added Tax (VAT) is a tax levied on most goods and services sold in the UK. Self-employed individuals and SMEs that register for VAT must charge VAT on their sales at the standard rate (currently 20%) and account for it to HMRC. This involves keeping detailed records, filing VAT returns, and potentially dealing with the complexities of reclaiming VAT paid on business purchases.

Until this week’s announcement, if your annual turnover exceeded £85,000, you were required to register for VAT. The Chancellor has now increased this threshold to £90,000. This seemingly small change can have a significant impact, particularly for the self-employed and smaller businesses in the creative industries:

• Reduced Administrative Burden: No longer needing to register for VAT translates to less paperwork and a lighter administrative load. Time spent calculating VAT, filing returns, and managing records can now be directed towards actually doing the job.
• Improved Cash Flow: Businesses can retain the VAT they would have previously charged, providing a much-needed cash flow boost. This is particularly beneficial for self-employed individuals who may operate with tighter margins or have fluctuating incomes.
• Simplified Pricing: With VAT removed from the equation, pricing becomes simpler and more transparent. This can enhance the competitiveness of your offerings, especially for customers who are VAT-exempt.

This is of particular interest to those in the creative industries, many of whom are freelancers, sole trader and those just starting out and who operate below the new threshold, allowing them to focus a little more on the things they want to do. No-one grows up dreaming of filing VAT returns, after all. 

But there’s still a number of things to consider:

• Voluntary Registration: Businesses with a turnover below £90,000 can still choose to register for VAT voluntarily. This may be beneficial if they make significant purchases, on equipment for example, with recoverable VAT.
• Deregistration Process: Businesses that were previously VAT-registered but now fall below the new £88,000 deregistration threshold (also increased) need to notify HMRC to deregister.
• EU Trade Considerations: Businesses that trade goods or services with the EU may still need to register for VAT depending on the transaction value and nature of the goods. That may not apply to many, post Brexit, especially in the music industry, but 

So now might be a good time to rethink how you deal with VAT – whether to register and how to take care of it. As with many of these sorts of issues, it about finding out where you can make savings – in your finances and in your time. Give us a call and we can talk it through.