The VAT threshold is the annual turnover at which a company is required to register for value added tax (VAT).
The current UK VAT registration threshold is £85,000. The government has said this threshold, which has been in place since 2017, will remain unchanged until March 31, 2024.
The VAT thresholds for the previous year are as follows:
- 2014–2015 – £81,000
- 2015–2016 – £82,000
- 2016–2018 – £83,000
- 2019-2024 – £85,000
Once your business reaches the VAT threshold, you have 30 days to register for VAT with HMRC. Once this process is complete, your business has additional responsibilities such as:
- impose VAT on goods and services
- Payment of VAT on goods or services provided by a vendor
- Submit annual VAT returns to HMRC
- Maintaining VAT accounts and records
Registration for VAT is a legal requirement for companies exceeding this threshold, which is reviewed regularly by HMRC.
VAT if the SME earns above the VAT threshold within the 12 month period or if the VAT taxable turnover is expected to exceed the VAT registration threshold within the next 30 days must be registered with
The 12-month period in question does not necessarily have to coincide with the tax year. It is necessary to periodically check whether the VAT taxable turnover for a particular 12-month period exceeds the current threshold of his VAT registration.
Pro tip: If you have just crossed the £85,000 VAT registration threshold, you must still register within 30 days of the end of the month in which you crossed the line. It’s important to monitor sales closely, at least monthly, especially if you’re approaching thresholds.
Are there VAT thresholds for sales or profits?
VAT thresholds are measured in turnover. Turnover is the sum of all sales that are not exempt from VAT.
VAT-exempt goods and services include:
- education and training
- healthcare and medical
- funeral plans, burial or cremation services
Zero-rated goods and services include:
- Incontinence products, maternity pads, hygiene products
- books, magazines, newspapers
- baby wear
- Children’s clothing/shoes
- cycle helmet
different VAT rates
|name||current rate||Explanation and example|
|standard||20%||The standard VAT rate is the default rate. This is the rate levied on most goods and services in the UK unless specifically designated as having a reduced or zero rate.|
|reduction||Five%||Domestically produced fuel/electricity, insulation materials made from energy-saving materials, child seats, etc.|
|zero||0%||Groceries (excluding restaurants and takeout), books/newspapers, children’s clothing/shoes|
|Exemption||none||VAT shall not be charged on VAT-exempt goods and services such as antiques, healthcare and funeral services.|
|Out of range||none||Items fully outside the UK VAT system include MOT test|
How VAT thresholds are calculated
You can calculate your annual taxable turnover by summing your total sales of goods and services (excluding VAT) for the last financial year (April to March).
For example, if you sold £60,000 worth of goods and £30,000 worth of services in a 12-month period, your total VAT taxable turnover would be £90,000.
Since you have exceeded the £85,000 VAT threshold, you will need to register for VAT and start charging the applicable goods and services sold from that point onwards.
Sole proprietorship and VAT – Whether you’re over the VAT threshold or voluntarily registering for VAT, we’ll tell you everything you need to know about VAT
What if it’s just a blip?
Your business may exceed the VAT threshold, but only temporarily. Therefore, it is possible to request a registration “exception” for small businesses. This means that you do not need to register for VAT.
This VAT registration exception must be applied for. It’s not enough to just say nothing and insist on it later.
Write to HMRC and explain the circumstances as to why you are requesting permission not to register. Reasons for not registering for VAT even if you exceed the VAT threshold include:
- Exceeding the VAT threshold was a one-time event
- that the VAT threshold is not likely to be exceeded again in the near future;
You should also provide supporting documentation to support your case.
Pro tip: Please note that even if HMRC approves your VAT exemption application, it is a one-time exemption and not an ongoing exemption. If your sales exceed the VAT threshold again, you must still register for VAT.
Voluntarily register for VAT
You can voluntarily register for VAT as long as your taxable turnover does not exceed the VAT registration threshold of £85,000.
The advantage of this is that it is cheaper if the customer is also registered for VAT. He can claim a VAT refund for whatever they buy from you, saving you 20% compared to not registering for VAT.
It is estimated that around 20% of all VAT registered businesses trade below the VAT registration threshold.
Also, if you are new to your business and know that you will soon reach the £85,000 VAT threshold, or if you know you will be selling primarily to VAT registered businesses, you may can claim VAT. – You can save money in the short term.
Do grants count towards the VAT threshold?
Grants are generally exempt from VAT.
How do I pay VAT to HMRC?
Sure, you can just blow your nose and give the tax office 20% of your turnover, but there are legal and official ways to smooth out payments to reduce your VAT bill and help with cash flow.
- flat rate – If your annual turnover is less than £150,000, you can participate in this scheme and pay HMRC VAT at a fixed percentage of your turnover depending on your industry. His VAT rate for the fixed rate scheme ranges from 4% to 14.5% compared to the standard tax rate of 20%. If you are participating in the flat rate scheme, you will be required to leave once your turnover exceeds the mandatory unenrolment threshold of £230,000.
- VAT cash accounting scheme – This works like regular cash accounting, VAT is paid and recorded when the money changes hands, not when the invoice is received. To participate in the VAT Cash Accounting Scheme, your VAT taxable turnover must be no more than £1.35 million. If there is a compulsory deregistration threshold and taxable turnover exceeds £1.6m, the scheme must be terminated.
- Annual Accounting Scheme VAT – Under the Annual Accounting VAT scheme, companies file annual VAT returns and prepay VAT invoices. If your VAT taxable turnover is £1.35 million or less, you are eligible to participate in the scheme. A company participating in the annual accounting VAT scheme must leave when its turnover exceeds his £1.6m de-registration threshold.
How to stay below the VAT threshold
Especially if you are a merchant, you don’t really like having to charge your customers a 20% surcharge. You will be at a disadvantage compared to your rivals.
One way to get below the threshold is to split your business into two or more separate businesses. check trade, but to make the distinction clear, each division of the company should provide different services. Having separate bank accounts for each business can also help.
Sole proprietors are increasingly avoiding VAT charges – Tens of thousands of small businesses deliberately stay small to avoid VAT charges.
Goods with import duty and zero VAT valuation – If I want to import goods with zero VAT, do I have to pay import duty? Where can I find more information about this?