In this guide, I’ll explain about the VAT registration thresholds, how to calculate whether you have reached the limits and what happens once you go over it.
|Cash and annual accounting scheme|
|Cash or annual accounting deregistration|
|Flat rate schemes turnover limit||£150,000||£150,000|
|Flat rate schemes deregistration turnover limit||£230,000||£230,000|
What is the VAT Registration Threshold?
- Looking back at the previous 12 months and taxable turnover exceeded £85,000 (on a rolling basis, not a fixed time period);
- Looking forward you expect your taxable turnover to exceed £85,000 in the next 30 days.
How to Calculate Taxable Turnover
Taxable turnover means the value of sales that would be relevant for charging standard VAT and zero-rated VAT, but excludes any sales that would be exempt from VAT (such as insurance or some financial services).
You need to check whether you expect to go over the VAT limit on a 12-month rolling basis – in other words, you’ll need to be constantly monitoring what you expect your turnover to be in the next 12 months, it’s not based on a fixed time period.
You’ll need to include the total value of your taxable sales including:
- goods you rented or loaned to your customers
- business goods used for personal reasons
- goods you bartered, part-exchanged or gave as gifts
- services you received from businesses that were covered under reverse charge arrangement
- building work over £100,000 your business did for itself
It is your responsibility to monitor your turnover and register for VAT if required. HMRC does not automatically register you. You’ll need to continually review your turnover on a rolling basis and register for VAT once you know it will exceed the VAT registration threshold in the next 30 days. Failing to register for VAT can result in hefty HMRC penalties, so make sure you have a bookkeeping system in place that you update regularly that helps you monitor your turnover.
What Happens Once You Go Over the Threshold?
Once you know you’re going to go over the VAT registration threshold, you’ll need to register for VAT as well as deciding which VAT scheme is going to be right for your business. When you do that and begin charging your customer VAT will depend on whether you are looking back at the last 12 months of looking forward at the next 30 days.
If you look back at your taxable turnover for the previous 12 months, then you must register and charge your customers VAT from the 1st day of the second month your turnover exceeded the limit. This is also known as a ‘late registration‘.
Molly has been in business for several years and her business is growing. She realises that she has exceeded the VAT registration limit at the end of October when she looks back at her total turnover for the previous 12 months from 1 November to 31 October. Molly must notify HMRC and register for VAT by 30 November. Molly will be registered for VAT from 1 December and she must charge customers VAT from this date also.
If looking forward and you know that you will exceed the VAT registration limit within the next 30 days then you must notify HMRC and register for VAT immediately. In this case, you will be registered for VAT immediately and must start charging VAT straight away too.
Carlos normally has an annual income being self-employed of £50,000. On 21 April a large contract is won of £50,000 to be delivered and billed in the next 30 days, meaning he exceeds the VAT limits. He needs to register for VAT by 21 May and begin charging his customers VAT from 21 April.
VAT MOSS Registration Threshold
From 2019 businesses selling digital products to consumers in EU countries outside of the UK are required to register for VAT MOSS once their taxable turnover goes over £8,818 during a calendar year.
Does the VAT Registration Threshold Include VAT?
When working out whether you have gone over the registration threshold, you’ll need to exclude VAT from your business turnover. You only include sales that would be subject to standard and zero-rated VAT.
Apply for a VAT Exception
You can avoid registering for VAT if your business turnover temporarily go over the threshold. But you must seek approval for this from HMRC by writing to them and providing evidence that your VAT taxable turnover will not go over the de-registration threshold of £83,000 in the next 12 months.
HMRC will consider your request for Exception from VAT Registration and write confirming if they agree you should be granted it. You can write to HMRC at this address:
HM Revenue and Customs – VAT Registration Service
77 Victoria Street
You can also avoid a VAT registration by simply shutting down your business for part of the year. Which may seem crazy, but some people do opt to do this especially if they sell to the general public. By registering for VAT they would have to add 20% to their prices which can make them uncompetitive so they choose to close up shop, this includes the holiday let industry.
VAT Threshold History
The VAT threshold is set each year as part of the UK Budget. Since 2017 we have not seen any changes to the thresholds and limits, but it has been changing over previous years. Here is a summary of the VAT threshold History:
|Period||To||VAT Registration Threshold|
|1 April 2020||31 March 2021||£85,000|
|1 April 2019||31 March 2020||£85,000|
|1 April 2018||31 March 2019||£85,000|
|1 April 2017||31 March 2018||£85,000|
|1 April 2016||31 March 2017||£83,000|
|1 April 2015||31 March 2016||£82,000|
|1 April 2014||31 March 2015||£81,000|
|1 April 2013||31 March 2014||£79,000|
|1 April 2012||31 March 2013||£77,000|
|1 April 2011||31 March 2012||£73,000|
|1 April 2010||31 March 2011||£70,000|
|1 April 2009||31 March 2010||£68,000|
|1 April 2008||31 March 2009||£67,000|
|1 April 2007||31 March 2008||£64,000|
|1 April 2006||31 March 2007||£61,000|
|1 April 2005||31 March 2006||£60,000|
|1 April 2004||31 March 2005||£58,000|
|1 April 2003||31 March 2004||£56,000|
|1 April 2002||31 March 2003||£55,000|
|1 April 2001||31 March 2002||£54,000|
|1 April 2000||31 March 2001||£52,000|
New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
- Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
- VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
- Invoice Template – Free template and step-by-step guide so you can get paid by your clients.