What is the VAT threshold?

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

Since April 2024, the UK VAT registration threshold has been £90,000.

VAT thresholds for earlier years are as follows:

• 2014–2015 – £81,000
• 2015–2016 – £82,000
• 2016–2018 – £83,000
• 2019-2024 – £85,000
• 2025 – £90,000

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

• Charging VAT in your services or products
• Paying VAT on the products or companies equipped 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 frequently by HMRC.

It’s worthwhile 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 inside the subsequent 30 days.

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

Professional tip: Even you probably have simply crossed the £90,000 VAT registration threshold, you will need to register inside 30 days of the tip of the month during which you crossed the road. You will need to hold an in depth eye in your turnover on not less than 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 the whole lot you promote that isn’t exempt from VAT.

VAT exempt items and companies embrace:

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

Zero-rated items and companies embrace:

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

Totally different VAT charges

How VAT threshold is calculated

You possibly can calculate your annual taxable turnover by including collectively your complete gross sales (excluding any VAT) throughout your services and products the final monetary 12 months (April to March).

For instance, in the event you bought £65,000 value of products over 12 months and £30,000 value of companies, then your complete VAT taxable turnover can be £95,000.

As a result of you might have crossed the £90,000 VAT threshold, you will need to register for VAT and begin charging it on relevant items and companies bought from that time onward.

Sole traders and VAT – Whether or not you cross the VAT threshold or register for VAT voluntarily, we clarify the whole lot you want to learn about Worth Added Tax

Accounting software program to assist along with your VAT return

As a VAT registered enterprise, you will need to submit your VAT returns each three months, even you probably have no VAT to pay or reclaim, and you will need to achieve this utilizing Making Tax Digital (MTD)-compatible software program.

The next suppliers provide accounting software program are compliant with MTD and might help you to calculate your VAT and invoice and submit your return.

Sage

Sage gives AI-powered, cloud-based accounting software program that means that you can calculate your VAT and submit your return on to HMRC. You possibly can select the frequency and set defaults to cut back errors.

Moss

Moss’s platform makes it straightforward to handle all of your accounting wants in a single place. It makes use of AI to robotically organise your information and prepares it in your data, making VAT returns a breeze.

Xero

Xero does all of the exhausting be just right for you, together with calculating your VAT in response to your scheme (flat charge, money and many others.), robotically making changes primarily based in your invoices and payments information, and submitting your return.

What if it’s only a blip?

It’s doable that your corporation will cross the VAT threshold however solely on a short lived foundation. Due to this fact, it’s doable 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 will 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 you probably 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 help your case.

Professional tip: Even when HMRC accepts your software for a VAT exception, keep in mind 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 possibly can nonetheless register for VAT voluntarily, even when your taxable turnover doesn’t exceed the VAT registration threshold of £90,000.

The benefit of that is that you simply change into cheaper in the event 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 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 £90,000 VAT threshold, or that you’ll be largely promoting to VAT-registered companies, you may 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 often exterior 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 legit 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, you could be a part of this scheme to pay VAT to HMRC at a fixed-rate proportion of turnover, relying on trade. VAT charges underneath the Flat Price 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 Price Scheme, you will need to 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 modifications palms, moderately than when an bill is acquired. To affix the VAT Money Accounting Scheme, you will need to have a VAT taxable turnover of £1.35 million or much less. There’s a obligatory deregistration threshold, and you will need to go away 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 direction of their VAT invoice. You possibly can be a 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 prospects 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 corporation into two or extra separate companies, in response to 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 be useful.

Sole traders increasingly avoid charging VAT – Tens of hundreds of small companies intentionally keep small to keep away from charging VAT, which implies you must hike costs in the event you wander over the £90,000 threshold

Extra on VAT

Import duty and zero VAT rated goods – 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?