What is the VAT threshold?

The VAT threshold is the quantity 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 mentioned 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 corporation’s turnover reaches the VAT threshold, you will have 30 days to register for VAT with HMRC. When this course of is full, your corporation has a additional obligations together with:

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

VAT registration

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

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

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

Professional tip: Even 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. You will need to preserve an in depth eye in your turnover on at the very least a month-to-month foundation, notably as you strategy the edge.

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’s not exempt from VAT.

VAT exempt items and companies embody:

• Schooling and coaching
• Healthcare and medical therapy
• Funeral plans, burial or cremation companies
• Antiques

Zero-rated items and companies embody:

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

Completely different VAT charges

How VAT threshold is calculated

You’ll be able to calculate your annual taxable turnover by including collectively your complete gross sales (excluding any VAT) throughout your services the final monetary 12 months (April to March).

For instance, in the event you offered £60,000 price of products over 12 months and £30,000 price of companies, then your complete VAT taxable turnover could be £90,000.

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

Sole merchants and VAT – Whether or not you go the VAT threshold or register for VAT voluntarily, we clarify every part it’s good to find out about Worth Added Tax

What if it’s only a blip?

It’s attainable that your corporation will cross the VAT threshold however solely on a short lived foundation. Due to this fact, it’s attainable 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 in case you have crossed the VAT threshold, embody:

• Crossing the VAT threshold was a one-off occasion
• That there’s no chance 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’ll be able to 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 turn into cheaper in the event you’re clients 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 in the event 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, in the event you’re simply beginning up and you realize that you simply’re rapidly going to hit the £85,000 VAT threshold, or that you can be principally promoting to VAT-registered companies, you may declare your VAT on the prices of establishing – saving you cash within the brief time period.

Do grants rely in the direction of VAT threshold?

Grant funding is usually exterior the scope of VAT.

How do I pay VAT to HMRC?

After all, you would simply maintain your nostril and hand 20 per cent of your turnover over to the taxman however there are legit and official methods to cut back you VAT invoice and easy out funds to assist cashflow:

• Flat Charge 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 trade. VAT charges below the Flat Charge Scheme vary from 4 per cent to 14.5 per cent in contrast with 20 per cent customary price. In case you’re a part of the Flat Charge Scheme, you could depart 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 modifications fingers, relatively 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 depart the scheme in case your taxable turnover is greater than £1.6 million.
• Annual Accounting Scheme VAT – Beneath the Annual Accounting VAT Scheme, companies submit one VAT Return per 12 months and make advance funds in the direction of their VAT invoice. You’ll be able to be part of the scheme in case your VAT taxable turnover is £1.35 million or much less. Firms collaborating within the Annual Accounting VAT Scheme should depart when their turnover crosses the £1.6 million deregistration threshold.

How you can keep below the VAT threshold

In case you’re a tradesman particularly, having to cost your clients a further 20 per cent just isn’t very palatable – it places you at an obstacle in contrast with rivals.

One method to keep below the edge is to separate your corporation into two or extra separate companies, in keeping with Checkatrade, however every a part of your organization wants to supply totally different companies to make the excellence clear. Having separate financial institution accounts for every enterprise can also 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 need to hike costs in the event 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 must pay import taxes on them? The place can I discover extra details about this?