"A Budget VAT attack would bludgeon UK consumers and businesses"

FINANCIAL experts have warned the Chancellor about making potential changes to VAT coverage in the forthcoming Budget, saying the risks would “bludgeon UK consumers and businesses”, reduce access to key services for lower income families, push professional advice even further out of reach for millions and deepen the cost of living crisis.

While expanding VAT to previously exempt services may deliver the short-term revenue and fiscal boost the Chancellor needs, the social and political cost, the experts warn, would be significant.

Areas where VAT could be introduced range from private tuition, financial advice, postal services and burials and cremations, to private medical care such as dentists and physios, residential property rentals and non-profit sports and physical education.

Luke James, Tax Director at Sheffield-based Gravitate Accounting said “a Budget VAT attack would bludgeon UK consumers and businesses”.

He added: "VAT exemptions are key for countless essential services like healthcare, education and housing. Removing them risks distorting behaviour, adding admin costs and sparking a public backlash that far outweighs any fiscal benefit. 

"Extending VAT to areas such as private tuition or non-profit sport would drive up prices and reduce access for lower-income families, while creating new compliance burdens for sole traders. Even sectors like financial services or insurance would face complex double-taxation issues.

“The UK’s VAT system already captures most consumer spending. Broadening it further might raise short-term revenue but risks inflation, confusion and reputational damage for a government promising fairness.

"Just because something raises money doesn’t mean it’s good policy. VAT reform should be guided by clarity, efficiency and fairness, not fiscal desperation.”

Antonia Medlicott, Founder & MD at Stonehouse-based Investing Insiders, said applying VAT to financial advice services would be counter-productive. 

She continued: "The FCA estimate that around 4.1 million UK adults would like financial advice but haven't been able to access it. And as a nation, our financial literacy — the understanding of how to budget, save, invest, and manage debt — is shockingly low.

"Adding VAT to the cost of financial help would push professional advice even further out of reach for millions of people, and sabotage the government’s own goals to encourage financial resilience."

Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said: "Expanding VAT to previously exempt services might sound like an easy win for the Treasury, but it risks squeezing exactly the people and sectors already under strain.

"Many sole traders, small business owners and independent professionals are still recovering from years of instability. Adding VAT could push up prices, shrink demand and wipe out already thin margins.

“It’s also regressive: middle-income families and self-employed workers would shoulder costs that larger corporations can easily absorb. If the goal is sustainable fiscal repair, taxing the smallest players isn’t the answer. It’s time to prioritise reform and growth over short-term grabs.”

Rohit Kohli, Director at Romsey-based The Mortgage Stop, said “expanding VAT isn’t a plan, it’s dithering desperation”. 

He added: "Every new tax grab drives up costs on everyday services and piles more pressure on families and businesses. It won’t close the fiscal gap sustainably but will suppress spending, confidence and growth.

"Households are already stretched to breaking point, and this would push many over the edge. Britain doesn’t need more taxes, it needs a strategy. This government has run out of ideas, time and, most importantly, all credibility."

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, said VAT rumours are already stalling investment and, if implemented, would hammer productivity: "Targeting VAT in the Budget rsks taxing growth before it starts. The real danger isn’t just higher VAT, it’s the uncertainty.

"Businesses don’t know whether to plan for a threshold rise to £100,000 or a cut to £30,000, and that limbo alone is enough to stall investment and hiring. The UK’s high VAT threshold has long created a cliff edge, just like the £100,000 income trap for individuals, where small firms hold back growth to avoid punitive taxes.

"Lowering it now would be disastrous for productivity, pushing thousands of sole traders and micro-businesses into new compliance costs and forcing price hikes for consumers.

"What we need is stability and simplicity: a threshold that supports expansion, not one that punishes success. Growth doesn’t come from taxing those working hardest to achieve it."

Pete Mugleston, Managing Director at Derby-based onlinemortgageadvisor.co.uk, warned that while expanding VAT would be an easy win for the Treasury, it would hit households and small businesses at the worst possible time and drive prices up: "Adding VAT to essentials like rent, healthcare or tuition would effectively be a stealth tax on the middle class and could drive prices up across the board.

"It might deliver short-term revenue, but it would deepen the cost of living crisis and suppress spending, the exact opposite of what the economy needs right now.”

Like Medlicott, Scott Gallacher, Director at Leicester-based Rowley Turton, said taxing financial advice would be a disaster: “The concern is that a government seemingly bereft of ideas, and desperate to balance the books, could hit the financial advice sector with VAT.

"But that would be a spectacular own goal. If the Chancellor genuinely wants to encourage investment in UK business, taxing financial advice is the worst possible move.

"It would drive people away from professional guidance, widen the advice gap, and starve British firms of much-needed capital. You don’t fuel growth by taxing the people who help others invest.”

Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange lamented that tinkering with the VAT regime “is not a structural fix but a one-time revenue boost and would come at a high economic and political cost”.