The VAT threshold is the amount of annual turnover at which companies are required to register for value-added tax (VAT).

The present UK VAT registration threshold stands at £85,000. The Authorities has stated that this threshold, in place since 2017, will stay unchanged till 31 March 2024.

VAT thresholds for earlier years are as follows:

• 2014–2015 – £81,000
• 2015–2016 – £82,000
• 2016–2018 – £83,000
• 2019-2024 – £85,000

As soon as your enterprise’s turnover reaches the VAT threshold, you might have 30 days to register for VAT with HMRC. When this course of is full, your enterprise has a further tasks together with:

• Charging VAT in your services or products
• Paying VAT on the products or providers provided by your distributors
• Submitting your VAT return to HMRC yearly
• Sustaining a VAT account and data

VAT registration

Registering for VAT is a authorized requirement for companies that exceed this threshold, and the brink is reviewed usually by HMRC.

You have to register for VAT in case your small enterprise has earned greater than the VAT threshold inside any 12-month interval or when you count on your VAT taxable turnover to cross the VAT registration threshold inside the subsequent 30 days.

The 12-month interval in query doesn’t essentially have to coincide with the tax yr. It’s best to usually verify whether or not your VAT taxable turnover for any given 12-month interval has crossed the present VAT registration threshold.

Professional tip: Even if in case you have simply crossed the £85,000 VAT registration threshold, you could register inside 30 days of the top of the month through which you crossed the road. It is very important maintain an in depth eye in your turnover on no less than a month-to-month foundation, significantly as you method the brink.

Is VAT threshold on turnover or revenue?

The VAT threshold is measured on turnover. Your turnover is the overall worth of every part you promote that isn’t exempt from VAT.

VAT exempt items and providers embrace:

• Training and coaching
• Healthcare and medical remedy
• Funeral plans, burial or cremation providers
• Antiques

Zero-rated items and providers embrace:

• Incontinence merchandise, maternity pads, sanitary safety
• Books, magazines and newspapers
• Babywear
• Youngsters’s garments and footwear
• Cycle helmets

Completely different VAT charges

How VAT threshold is calculated

You may calculate your annual taxable turnover by including collectively your whole gross sales (excluding any VAT) throughout your services the final monetary yr (April to March).

For instance, when you bought £60,000 price of products over 12 months and £30,000 price of providers, then your whole VAT taxable turnover can be £90,000.

As a result of you might have crossed the £85,000 VAT threshold, you could register for VAT and begin charging it on relevant items and providers bought from that time onward.

Sole merchants and VAT – Whether or not you move the VAT threshold or register for VAT voluntarily, we clarify every part you have to learn about Worth Added Tax

What if it’s only a blip?

It’s potential that your enterprise will cross the VAT threshold however solely on a short lived foundation. Subsequently, it’s potential to request your small enterprise has a registration “exception”, which implies you don’t have to register for VAT.

This VAT registration exception is one thing you could apply for – it’s not sufficient to say nothing and argue the case later.

Write to HMRC and clarify the circumstances as to why your are making use of for permission to not register. Causes for not registering for VAT, even if in case you have crossed the VAT threshold, embrace:

• Crossing the VAT threshold was a one-off occasion
• That there’s no probability of your crossing the VAT threshold once more within the close to future

Additionally, you will want to produce supporting paperwork to assist your case.

Professional tip: Even when HMRC accepts your software for a VAT exception, do not forget that it’s a one-off and never an ongoing exclusion. You’ll nonetheless have to register for VAT in case your turnover once more exceeds the VAT threshold.

Registering for VAT voluntarily

You may nonetheless register for VAT voluntarily, even when your taxable turnover doesn’t exceed the VAT registration threshold of £85,000.

The benefit of that is that you simply grow to be cheaper when you’re prospects are additionally registered for VAT. They will declare VAT again on no matter they purchase from you, saving them 20 per cent in comparison with when you weren’t registered for VAT.

It’s estimated that round 20 per cent of all VAT-registered companies commerce beneath the VAT registration threshold.

Additionally, when you’re simply beginning up and you understand that you simply’re shortly going to hit the £85,000 VAT threshold, or that you’ll be largely promoting to VAT-registered companies, you’ll be able to declare your VAT on the prices of organising – saving you cash within the brief time period.

Do grants rely in direction of VAT threshold?

Grant funding is usually exterior the scope of VAT.

How do I pay VAT to HMRC?

In fact, you possibly can simply maintain your nostril and hand 20 per cent of your turnover over to the taxman however there are official and official methods to scale back you VAT invoice and easy out funds to assist cashflow:

• Flat Fee Scheme – In case your annual turnover is lower than £150,000, it’s possible you’ll be part of this scheme to pay VAT to HMRC at a fixed-rate proportion of turnover, relying on business. VAT charges underneath the Flat Fee Scheme vary from 4 per cent to 14.5 per cent in contrast with 20 per cent customary price. Should you’re a part of the Flat Fee Scheme, you could go away as soon as your turnover goes above the obligatory deregistration threshold of £230,000.
• VAT Money Accounting Scheme – This works equally to common money accounting, the place VAT is paid and recorded when cash adjustments fingers, somewhat than when an bill is obtained. To affix the VAT Money Accounting Scheme, you could have a VAT taxable turnover of £1.35 million or much less. There’s a obligatory deregistration threshold, and you could go away the scheme in case your taxable turnover is greater than £1.6 million.
• Annual Accounting Scheme VAT – Below the Annual Accounting VAT Scheme, companies submit one VAT Return per yr and make advance funds in direction of their VAT invoice. You may be part of the scheme in case your VAT taxable turnover is £1.35 million or much less. Firms taking part within the Annual Accounting VAT Scheme should go away when their turnover crosses the £1.6 million deregistration threshold.

keep underneath the VAT threshold

Should you’re a tradesman particularly, having to cost your prospects a further 20 per cent shouldn’t be very palatable – it places you at a drawback in contrast with rivals.

One solution to keep underneath the brink is to separate your enterprise into two or extra separate companies, in keeping with Checkatrade, however every a part of your organization wants to supply completely different providers to make the excellence clear. Having separate financial institution accounts for every enterprise can be useful.

Sole merchants more and more keep away from charging VAT – Tens of 1000’s of small companies intentionally keep small to keep away from charging VAT, which implies you must hike costs when you wander over the £85,000 threshold

Extra on VAT

Import responsibility and nil VAT rated items – If I wish to import zero VAT-rated items, will I nonetheless need to pay import taxes on them? The place can I discover extra details about this?