VAT Threshold Could Rise to £150,000? Debate Grows Over Doubling Pension Tax Allowance as 1.5 Million Face Council Tax Legal Action
- TBA
- Jun 15
- 7 min read
Reform UK vows to raise VAT threshold to £150,000
Reform UK has announced that, if it wins the next general election, it will raise the VAT (Value Added Tax) registration threshold for small businesses from the current £90,000 to £150,000, aiming to provide what it calls a “fairer deal” for small business owners and self-employed workers in the UK. The proposal has once again sparked a long-running debate over the costs and benefits of tax reform.
According to plans unveiled by the party last week, businesses with an annual turnover below £150,000 would no longer be required to register for or pay VAT.
Although the tax cut is expected to reduce government revenue by more than £2 billion, Reform UK argues that the long-term fiscal benefits generated by higher productivity across the British economy would offset the cost. The party also stated that, in the short term, the policy would be funded through reductions in civil service spending, welfare expenditures, and spending related to “net-zero emissions” policies.
At present, the maximum VAT registration threshold permitted for European Union member states is €100,000. Reform UK contends that, following Brexit, the UK enjoys greater policy autonomy, and that raising the threshold would strengthen the country’s international competitiveness while further unlocking the benefits of leaving the EU.
Party leader Nigel Farage said: “When we proposed abolishing tax on overtime earnings, we promised that self-employed workers and small business owners would also benefit. Today’s announcement of a higher VAT registration threshold is the beginning of delivering on that promise.”
In fact, Farage stated in a media interview last year that the current £90,000 VAT threshold was “clearly too low,” as many small businesses with only one or two employees find themselves hovering around that level. At the time, he suggested increasing the threshold to around £160,000.
Tax experts have expressed mixed views on the proposal.
Economists at the Chartered Institute of Taxation (CIOT) argue that the current VAT threshold system distorts market competition and should be reformed to create a fairer business environment, simplify tax administration, and establish a more sustainable tax system.
Other economists acknowledge that the VAT system may, to some extent, discourage business growth, but warn that a substantial increase in the threshold would impose a “significant cost” on public finances. One economist commented: “Rather than raising the threshold, the government should address the issue by lowering or even abolishing the threshold and broadening the VAT tax base.”
Analysts believe that this attractive tax-cutting proposal serves not only as a key expression of Reform UK’s support for small businesses and self-employed workers, but may also be intended to divert attention from controversies surrounding some of the party’s candidates and help secure greater voter support ahead of upcoming by-elections.
Rachel Reeves double UK state pension tax threshold to £25,140 showdown
Recently, a petition calling for reform of pension taxation has gathered 119,206 signatures, surpassing the 100,000-signature threshold required for consideration by the UK Parliament. The petition proposes increasing the tax-free personal allowance for recipients of the State Pension from the current £12,570 to £25,140—effectively doubling it.
Under parliamentary procedures, MPs are scheduled to debate the issue on 15 June, and the UK Treasury will be required to formally respond and clarify the government's position.
The petition proposes creating a separate tax code for pensioners, with a tax-free allowance of £25,140. Key elements of the proposal include:
Pensioners would pay no income tax on annual income up to £25,140.
Higher-income retirees would continue to pay tax as normal.
The policy is primarily aimed at reducing the tax burden on low- and middle-income pensioners.
At the heart of the debate is the UK's Triple Lock system. Under this mechanism, the State Pension increases each year by whichever is highest: average earnings growth, inflation, or 2.5%. The policy is designed to ensure that pensioners' purchasing power is protected from economic changes.
As a result, State Pension payments have risen steadily in recent years. Market forecasts suggest that by 2027, the annual State Pension could exceed the current personal tax-free allowance of £12,570 for the first time. This would mean that even individuals with no other source of income could become liable for income tax solely because of their State Pension income.
Analysts believe this development could bring millions of pensioners into the income tax system for the first time, further intensifying calls for pension tax reform.
After the petition passed the 10,000-signature mark, the UK Treasury issued an official response. The Treasury stated that the Triple Lock is widely regarded as one of the most generous pension uprating systems in the world. Under current plans, the State Pension will increase by 4.8% next April, providing pensioners with up to £575 in additional annual income.
However, as pension payments continue to rise, increasing numbers of retirees are concerned that they may be pushed into paying income tax. Many are questioning whether some of the gains from higher pensions could effectively be offset by higher tax liabilities.
The upcoming parliamentary debate is expected to further raise the profile of the issue and may prompt the Treasury to provide clearer answers on several key questions. Analysts argue that, against the backdrop of an aging population and a growing number of retirees, pension taxation could become one of the major political and fiscal policy debates in the UK over the coming years.
At the same time, although Chancellor Rachel Reeves did not increase the personal income tax allowance in her Autumn Budget, she previously made a clear commitment that pensioners who rely solely on the full State Pension would not be required to pay income tax or file tax returns simply because their pension income exceeded the personal allowance threshold.
In response to that commitment, the Treasury further explained that if the State Pension eventually rises above the personal allowance, pensioners who receive only the Basic State Pension or the New State Pension and have no other sources of income will no longer be required to pay small tax liabilities through the Simple Assessment system from the 2027/28 tax year onward.
The Treasury stated that the details of the implementation are still being developed and that further information is expected to be published in 2026. This means that even if the State Pension exceeds the personal allowance in the future, eligible pensioners may be spared the need to file tax returns or make additional tax payments, thereby reducing administrative burdens.
More than 1.5 million people taken to court over unpaid council tax
According to newly released research by the UK trade union GMB, at least 1.5 million people across Britain have faced legal proceedings over unpaid Council Tax during the past year, raising fresh concerns about the financial pressures on local authorities and the fairness of the current council tax system.
After submitting Freedom of Information (FOI) requests to 200 local authorities across the UK, GMB found that approximately 1.4 million court summonses related to council tax arrears were issued during the 2024/25 financial year. Since some local authorities did not provide data, the union believes the true figure is likely to be significantly higher, estimating that at least 1.5 million individuals have become involved in legal proceedings over unpaid council tax.
Council Tax is a key source of revenue for local governments in the UK, funding essential public services such as waste collection, social care, road maintenance, and community services. When residents fall seriously behind on payments, local authorities typically apply for a Liability Order through the courts, which can then lead to wage deductions, benefit deductions, or the involvement of debt collection agencies.
GMB National Secretary Rachel Harrison said the figures demonstrate that the current council tax system is becoming increasingly unsustainable. She argued that the existing property banding system is severely outdated and no longer reflects residents’ actual wealth levels or current property values. The union is calling for tax reforms that would require owners of higher-value properties to contribute more, creating what it sees as a fairer distribution of the tax burden.
In addition, GMB has proposed reforms to the Business Rates system, allowing local authorities to retain a greater share of business tax revenues to support the regeneration of struggling high streets and local economies across the country.
Harrison also questioned the practice of local authorities pursuing millions of residents through the courts simply to maintain balanced budgets: “Cash-strapped councils are being forced to take 1.5 million people to court just to keep their finances afloat. That should not be considered a normal way of operating.”
In recent years, a number of local councils across the UK have declared financial crises or effectively entered bankruptcy proceedings by issuing a Section 114 Notice, highlighting the severe pressures facing local government finances.
As living costs continue to rise, households' ability to pay declines, and funding gaps within local government budgets widen, council tax arrears are becoming an increasingly significant social and fiscal challenge in the UK.
Analysts note that the fact that more than 1.5 million people have been drawn into legal proceedings over council tax debts not only reflects growing financial pressures on households, but also exposes long-standing structural weaknesses in the UK's local government funding model. Debate over council tax reform, central government funding, and the future reconstruction of local government finances is therefore expected to intensify in the years ahead.
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