VAT threshold – What is the VAT threshold?

 

The VAT threshold is the amount of sales a business can make before it needs to register for VAT. 

You must register for VAT if: 

  1. VAT taxable turnover in the previous 12 months is more than the VAT registration threshold (The historic test), or

2. You expect to exceed the VAT registration threshold in the next 30 days alone (The future test). 

If your sales in the last 12 months are more than £85k it’s likely you need to register for VAT. The easiest thing to do is to speak to your accountant and they can let you know.

What is the current UK VAT threshold?

 

The current VAT registration threshold is £85,000 and will remain at £85,000 until at least 31 March 2024.

However, you should check the threshold each year because it may change from 1 April each year.

 

Important dates for VAT Registration

 

If you breach the VAT threshold of £85,000 based on the historical test you must notify HMRC within 30 days from the end of the month in which the limit is breached. You charge VAT on supplies from the first day of the following month.

If you breach the VAT threshold based on the future test you must notify HMRC within 30 days of the day you believe the supplies in the next 30 days alone will exceed £85,000. VAT registration is immediate and you must charge VAT straight away.

If you register late:

  • You will still have to pay VAT from the time you should have registered
  • A penalty may be charged

 

Example of VAT registration using the historical test

 

Assume that at 30/04/2022 taxable turnover is £80,000 for previous 12 months – no need to inform HMRC since the turnover is less than the registration threshold of £85,000.

Assume that at 31/05/2022 taxable turnover is £86,000 for previous 12 months – need to inform HMRC since the turnover is more than the registration threshold of £85,000.

Must register for VAT by no later than 30 June 2022 (Within 30 days of end of month of breaching turnover threshold)

Charge VAT on supplies from 1 July 2022 (The first day of the following month)

 

What are the historical UK VAT registration thresholds?

 

The VAT registration thresholds for the past few years are as follows:

 

From 1 April 2013             79,000

From 1 April 2014             81,000

From 1 April 2015             82,000

From 1 April 2016             83,000

From 1 April 2017             85,000

 

The £85,000 threshold has been in place from 1 April 2017, and is not forecast to increase until at least 1 April 2024. The 2017 threshold hasn’t increased in line with inflation each year meaning more businesses need to register for VAT each year.

 

What are the historical UK VAT deregistration thresholds?

 

The deregistration threshold is the level of taxable turnover at which you can deregister from VAT.

The VAT deregistration thresholds for the past few years are as follows:

 

From 1 April 2013             77,000

From 1 April 2014             79,000

From 1 April 2015             80,000

From 1 April 2016             81,000

From 1 April 2017             83,000

 

 

VAT threshold and accounting schemes

 

HMRC allow some businesses to use VAT schemes to simplify the reporting process.

 

Scheme Turnover to join Turnover to leave
Flat rate Up to £150,000 Over £230,000
Cash accounting Up to £1.35 million Over £1.6 million
Annual accounting Up to £1.35 million Over £1.6 million

 

 

What happens if I don’t register for VAT on time?

 

If you don’t register for VAT on time, you will be charged a penalty.

The penalty is worked out as a percentage of the VAT due (output tax less input tax), from the date when you should have registered to the date HMRC either received your notification, or became fully aware that you were required to be registered. The rate of penalty depends on how late you were in registering:

 

If you registered Then the penalty rate will be
not more than 9 months late 5%
more than 9 months but not more than 18 months late 10%
more than 18 months late. 15%

 

There is a minimum penalty of £50.

 

VAT threshold – Useful links:

 

Main VAT blog

HMRC VAT registration guidance

 

 

VAT threshold – Accountants in Cheltenham

 

Every effort has been made to ensure the information in this page is accurate and up-to-date. However, no liability will be accepted should you rely on the information provided. Professional advice specific to your circumstances should be obtained.

If you’re looking for an accountant in Cheltenham or Gloucestershire, please contact us to see how we can help.