Janice R. Andrews
A café owner in Axbridge, Somerset, has highlighted how current VAT regulations are forcing his business to artificially restrict its growth. Steve Corrick, who transitioned from accounting to running a teashop, has taken the unusual step of closing his establishment one day weekly to avoid exceeding the VAT threshold.
The heart of the issue lies in the UK’s VAT system, which exempts businesses earning below £90,000 annually from paying VAT. However, exceeding this amount by even £1 triggers a requirement to pay 20% VAT on the entire revenue. This creates what Corrick describes as a “cliff edge” scenario, where earning slightly more can result in a substantial tax burden of £15,000.
This regulatory framework presents small business owners with an unwelcome choice: either artificially cap their growth or face significantly reduced profits due to VAT obligations. To make VAT registration financially viable, Corrick estimates his café would need to generate around £140,000 in annual revenue – a figure that would require substantial operational changes and increased costs.
The Federation of Small Businesses (FSB) reports that this is a widespread concern, with 38% of businesses operating near the threshold viewing it as a major growth obstacle. Sam Holliday of the FSB notes that if the threshold had kept pace with inflation, it would currently stand at approximately £120,000.
The impact extends beyond mere finances. Operating from a historic building that once served as an alms house, Corrick’s café is forced to limit its community service and employment potential. The irony of running a business in a former charitable establishment while being forced to restrict operations isn’t lost on him.
Corrick is advocating for VAT reform in the upcoming Budget, calling on Chancellor Rachel Reeves to address this issue. The FSB supports this position, arguing that current regulations stifle growth and innovation among small businesses.
The situation exemplifies a broader challenge facing UK small businesses: the need to balance growth against tax implications. Without reform, many businesses may continue to artificially restrict their operations, potentially limiting both their own success and their contributions to local communities.
