The Treasury has frozen the UK’s VAT thresholds for a further two years in a bid to start repairing tattered public finances following COVID-19.

Businesses with annual taxable turnover of more than £85,000 have to register for UK VAT and file digital VAT returns through compatible software. This VAT-registration threshold for 2021/22 remains at £85,000 and will be maintained at this level for a further two years from 1 April 2022. On this basis, the VAT-registration and the £83,000 deregistration threshold will remain unchanged until at least 31 March 2024.

Business groups loosely welcomed the move, while expressing concerns that it will stifle firms and not incentivise them to register for UK VAT. Mike Cherry, chairman at the Federation of Small Businesses, said: “Maintaining the £85,000 threshold for VAT registration is positive, however, it will not resolve the bunching issue where firms near that turnover level and stop growing.

“We hope policymakers will look again at the Office for Tax Simplification’s proposal for a smoothing mechanism.”

Meanwhile, the VAT discount for businesses providing goods and supplies in the tourism and hospitality sectors has been extended by six months. The temporary 5% rate was due to expire on 31 March 2021, but will now end on 30 September 2021. Beyond that, a new 12.5% rate of UK VAT will kick in to cover supplies made in these sectors between 1 October 2021 and 31 March 2022.

This intermediate rate is to ease these businesses back to the application of the standard rate of UK VAT on their supplies. Kate Nicholls, chief executive of UKHospitality, said: “An extension of the 5% VAT rate was absolutely crucial for hospitality businesses and will bring peace of mind to the sector over the next year.

“It is now vital the Government looks at introducing the interim rate for hospitality on a permanent basis to make us internationally competitive.”

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