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. From April 1 2024, it’ll improve 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 will have 30 days to register for VAT with HMRC. When this course of is full, your small business has a additional duties together with:
Charging VAT in your services or products
Paying VAT on the products or providers equipped 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 brink is reviewed frequently by HMRC.
It is advisable to 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 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 12 months. You need to frequently examine whether or not your VAT taxable turnover for any given 12-month interval has crossed the present VAT registration threshold.
Professional tip: Even when you have simply crossed the £85,000 (£90,000 after April 1, 2024) VAT registration threshold, you could register inside 30 days of the tip of the month wherein you crossed the road. It is very important hold an in depth eye in your turnover on a minimum of a month-to-month foundation, significantly as you strategy the brink.
Is VAT threshold on turnover or revenue?
The VAT threshold is measured on turnover. Your turnover is the entire worth of all the pieces you promote that’s not 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
NameCurrent rateDescription and examples
Standard20%The usual charge of VAT is the default charge – that is the speed that is charged on most items and providers within the UK except they’re particularly recognized as being decreased or zero-rated.
Reduced5percentDomestic gas and energy, insulation of energy-saving supplies, youngsters’s automotive seat, and many others.
Zero0percentFood (not meals in eating places or takeawys although), books/newspapers, youngsters’s garments/sneakers
Exemptn/aVAT exempt items and providers comparable to antiques, healthcare and funeral providers, should not have VAT charged on them
Outdoors the scopen/aItems utterly exterior of the UK VAT system embrace MOT exams
How VAT threshold is calculated
You possibly can calculate your annual taxable turnover by including collectively your whole gross sales (excluding any VAT) throughout your services and products 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 providers, then your whole VAT taxable turnover can 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 providers offered from that time onward. From April 1, 2024, you’ll even have crossed the brink and you could register for VAT.
Sole merchants and VAT – Whether or not you cross the VAT threshold or register for VAT voluntarily, we clarify all the pieces it’s essential to learn 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. Due to this fact, 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 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 when 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, keep in mind 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 possibly can 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 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 that you simply’re rapidly going to hit the £85,000/£90,000 VAT threshold, or that you’ll be principally 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 the direction of VAT threshold?
Grant funding is often exterior the scope of VAT.
How do I pay VAT to HMRC?
After all, 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 cut back you VAT invoice and clean out funds to assist cashflow:
Flat Charge Scheme – In case your annual turnover is lower than £150,000, you could 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 Charge Scheme vary from 4 per cent to 14.5 per cent in contrast with 20 per cent normal charge. Should you’re a part of the Flat Charge 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, quite 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 12 months and make advance funds in the direction of their VAT invoice. You possibly can 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.
Methods to keep underneath the VAT threshold
Should you’re a tradesman particularly, having to cost your clients an extra 20 per cent just isn’t very palatable – it places you at an obstacle in contrast with rivals.
One technique to keep underneath the brink is to separate your small business into two or extra separate companies, based on 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 1000’s of small companies intentionally keep small to keep away from charging VAT, which suggests you need to hike costs in the event you wander over the £85,000 threshold
Extra on VAT
Import obligation and 0 VAT rated items – If I need to import zero VAT-rated items, will I nonetheless should pay import taxes on them? The place can I discover extra details about this?
