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. From April 1 2024, it’ll enhance to £90,000, as introduced by Chancellor, Jeremy Hunt.
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 small business’s turnover reaches the VAT threshold, you have got 30 days to register for VAT with HMRC. When this course of is full, your small business has a further obligations 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 information
VAT registration
Registering for VAT is a authorized requirement for companies that exceed this threshold, and the edge is reviewed usually by HMRC.
It is advisable register for VAT in case your small enterprise has earned greater than the VAT threshold inside any 12-month interval or when you anticipate your VAT taxable turnover to cross the VAT registration threshold throughout the subsequent 30 days.
The 12-month interval in query doesn’t essentially must coincide with the tax yr. It’s best to usually test 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 (£90,000 after April 1, 2024) VAT registration threshold, you need to register inside 30 days of the top of the month through which you crossed the road. It is very important maintain a detailed eye in your turnover on no less than 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 entire 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
Totally different VAT charges
| Identify | Present price | Description and examples |
| Customary | 20% | The usual price of VAT is the default price – that is the speed that is charged on most items and providers within the UK until they’re particularly recognized as being decreased or zero-rated. |
| Decreased | 5% | Home gas and energy, insulation of energy-saving supplies, youngsters’s automotive seat, and many others. |
| Zero | 0% | Meals (not meals in eating places or takeawys although), books/newspapers, youngsters’s garments/footwear |
| Exempt | n/a | VAT exempt items and providers reminiscent of antiques, healthcare and funeral providers, should not have VAT charged on them |
| Outdoors the scope | n/a | Gadgets utterly outdoors of the UK VAT system embrace MOT checks |
How VAT threshold is calculated
You may calculate your annual taxable turnover by including collectively your complete gross sales (excluding any VAT) throughout your services and products the final monetary yr (April to March).
For instance, when you offered £60,000 price of products over 12 months and £30,000 price of providers, then your complete VAT taxable turnover can be £90,000.
As a result of you have got crossed the £85,000 VAT threshold, you need to register for VAT and begin charging it on relevant items and providers offered from that time onward. From April 1, 2024, you’ll even have crossed the edge and you need to register for VAT.
Sole merchants and VAT – Whether or not you cross the VAT threshold or register for VAT voluntarily, we clarify every part you want to find out about Worth Added Tax
What if it’s only a blip?
It’s potential that your small business 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 suggests you don’t must register for VAT.
This VAT registration exception is one thing you need to 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 utility for a VAT exception, do not forget that it’s a one-off and never an ongoing exclusion. You’ll nonetheless must 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 (£90,000 from April 2024).
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 recognize that you simply’re rapidly going to hit the £85,000/£90,000 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 depend in direction of VAT threshold?
Grant funding is often outdoors the scope of VAT.
How do I pay VAT to HMRC?
In fact, you may simply maintain your nostril and hand 20 per cent of your turnover over to the taxman however there are official and official methods to cut back you VAT invoice and easy out funds to assist cashflow:
- Flat Price Scheme – In case your annual turnover is lower than £150,000, chances are you’ll be a part of this scheme to pay VAT to HMRC at a fixed-rate share of turnover, relying on business. VAT charges below the Flat Price Scheme vary from 4 per cent to 14.5 per cent in contrast with 20 per cent commonplace price. In the event you’re a part of the Flat Price Scheme, you need to 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 adjustments fingers, moderately than when an bill is acquired. To affix the VAT Money Accounting Scheme, you need to have a VAT taxable turnover of £1.35 million or much less. There’s a obligatory deregistration threshold, and you need to depart 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 a 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.
The best way to keep below the VAT threshold
In the event you’re a tradesman particularly, having to cost your prospects a further 20 per cent isn’t very palatable – it places you at a drawback in contrast with rivals.
One technique to keep below the edge is to separate your small business into two or extra separate companies, in line with Checkatrade, however every a part of your organization wants to supply totally different providers 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 hundreds of small companies intentionally keep small to keep away from charging VAT, which suggests it’s a must to hike costs when you wander over the £85,000 threshold
Extra on VAT
Import obligation and 0 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?
