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’ve got 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 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’s essential register for VAT in case your small enterprise has earned greater than the VAT threshold inside any 12-month interval or if you happen to 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 must coincide with the tax 12 months. It is best to usually examine 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 could register inside 30 days of the top of the month through which you crossed the road. It is very important hold a detailed eye in your turnover on a minimum of a month-to-month foundation, notably as you method the edge.
Is VAT threshold on turnover or revenue?
The VAT threshold is measured on turnover. Your turnover is the whole worth of all the pieces 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 |
| Normal | 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 except they’re particularly recognized as being decreased or zero-rated. |
| Decreased | 5% | Home gas and energy, insulation of energy-saving supplies, youngsters’s automobile seat, and so on. |
| 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 |
| Exterior the scope | n/a | Objects fully outdoors of the UK VAT system embrace MOT assessments |
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 the final monetary 12 months (April to March).
For instance, if you happen to offered £65,000 value of products over 12 months and £30,000 value of providers, then your whole VAT taxable turnover could be £95,000.
As a result of you’ve got crossed the £90,000 VAT threshold, you could register for VAT and begin charging it on relevant items and providers offered from that time onward.
Sole merchants and VAT – Whether or not you cross the VAT threshold or register for VAT voluntarily, we clarify all the pieces you should find out about Worth Added Tax
Accounting software program to assist along with your VAT return
As a VAT registered enterprise, you could submit your VAT returns each three months, even you probably have no VAT to pay or reclaim, and you could achieve this utilizing Making Tax Digital (MTD)-compatible software program.
The next suppliers provide accounting software program are compliant with MTD and may also help you to calculate your VAT and invoice and submit your return.
Sage
Sage presents 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 knowledge and prepares it to your information, making VAT returns a breeze.
Xero
Xero does all of the arduous give you the results you want, together with calculating your VAT in response to your scheme (flat price, money and so on.), robotically making changes based mostly in your invoices and payments knowledge, and submitting your return.
What if it’s only a blip?
It’s potential that your corporation will cross the VAT threshold however solely on a brief foundation. Subsequently, it’s potential to request your small enterprise has a registration “exception”, which implies 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 you probably have crossed the VAT threshold, embrace:
- 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 provide 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 £90,000.
The benefit of that is that you simply turn out to be cheaper if you happen to’re prospects are additionally registered for VAT. They’ll declare VAT again on no matter they purchase from you, saving them 20 per cent in comparison with if you happen to 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, if you happen to’re simply beginning up and you already know that you simply’re shortly going to hit the £90,000 VAT threshold, or that you may be largely promoting to VAT-registered companies, you possibly can declare your VAT on the prices of organising – saving you cash within the quick time period.
Do grants rely in direction of VAT threshold?
Grant funding is usually outdoors the scope of VAT.
How do I pay VAT to HMRC?
In fact, you would simply maintain your nostril and hand 20 per cent of your turnover over to the taxman however there are professional 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, it’s possible you’ll be a part of this scheme to pay VAT to HMRC at a fixed-rate proportion of turnover, relying on business. VAT charges beneath the Flat Price Scheme vary from 4 per cent to 14.5 per cent in contrast with 20 per cent commonplace price. For those who’re a part of the Flat Price 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 modifications palms, somewhat than when an bill is obtained. To hitch 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 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. Corporations taking part within the Annual Accounting VAT Scheme should go away when their turnover crosses the £1.6 million deregistration threshold.
How one can keep beneath the VAT threshold
For those who’re a tradesman particularly, having to cost your prospects an extra 20 per cent shouldn’t be very palatable – it places you at a drawback in contrast with rivals.
One technique to keep beneath the edge 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 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 hundreds of small companies intentionally keep small to keep away from charging VAT, which implies it’s a must to hike costs if you happen to wander over the £90,000 threshold
Extra on VAT
Import obligation and nil VAT rated items – If I wish to import zero VAT-rated items, will I nonetheless should pay import taxes on them? The place can I discover extra details about this?
