Hunt privately admitted VAT thresholds for UK businesses were limited by EU rules

Jeremy Hunt privately admitted to colleagues that he would not be able to further increase the VAT threshold for UK businesses because of EU rules.

The Chancellor announced in the Budget on Wednesday that businesses with a turnover of less than £90,000 will no longer have to pay VAT, up from the previous threshold of £85,000.

Hunt told a number of MPs before the Budget that the maximum he could raise the threshold was £90,000 due to the Northern Ireland deal with the EU.

The revelation angered Conservative Brexiteers who are critical of the deal, which sets out Northern Ireland’s relationship with Britain and the EU after Brexit.

Conservative MPs and small business groups have been calling for a significant increase in the VAT threshold for UK businesses. The New Conservative Party, made up of right-wing Tory MPs, has called for this to be raised to £250,000. The Federation of Small Businesses is calling for this to be increased to £100,000.

But Hunt privately told colleagues that raising the threshold above £90,000 would only be possible in the UK under the deal, setting up a different VAT regime for Northern Ireland. A Treasury source said the chancellor did not want different VAT rules in England and Northern Ireland.

Former business secretary Jacob Rees-Mogg told the Guardian: “It’s ridiculous that our VAT policy is still dictated by Brussels, especially given that the threshold level is so economically important. It prevents small businesses from growing and adding employees because their competitiveness suddenly drops by 20%.”

David Jones, deputy chair of the European Research Group, the pro-Brexit Conservative caucus, said it was “a huge shame because the VAT threshold is so low and discourages people from starting a business or expanding an existing business”.

He added: “The £5,000 increase is welcome but colleagues are actually talking about doubling the threshold. If that cannot be done because of arrangements with the EU, then the government should really go back and start discussing this with the EU. “

The UK Treasury said raising the VAT threshold to £90,000 would exempt 28,000 small businesses in the UK from paying tax. The change, effective April 1, is the first increase in seven years.

Under the terms of the Northern Ireland Protocol and the Windsor Framework negotiated by Rishi Sunak, the UK must respect the EU’s €100,000 VAT threshold when setting Northern Ireland VAT rules. This would see Northern Ireland businesses enjoy no tax advantage over EU businesses, ensuring a “level playing field”.