Find out how the VAT threshold works for UK businesses, the VAT limits for different VAT schemes and checking a business’ turnover for VAT purposes, as well as what happens when it crosses the thresholds set by HMRC.
Table of contents
- 1. The VAT Threshold for 2021
- 2. VAT Registration Limits
- 3. VAT Registration and the Self Employed
- 4. What Happens Once You Go Over the VAT Limit?
- 6. Does the VAT Registration Threshold Include VAT?
- 7. How to Apply for a VAT Exception
- 8. VAT Threshold History
- 9. VAT Deregistration
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
1. The VAT Threshold for 2021
- Looking back at the previous 12 months business taxable turnover will exceed the VAT limit (this is based on a 12 month rolling basis, not a fixed time period and is known as a ‘late registration’);
- Looking forward business’ taxable turnover is expected to exceed £85,000 VAT limit in the next 30 days.
1.2 Examples of Exceeding the VAT Registration Threshold
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 begin issuing VAT invoices from this date also.
Carlos normally has a VAT taxable income from being self-employed of approximately £50,000. On 21 April 2021, he wins a large contract 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 2021 and his VAT tax point to begin charging his customers VAT is 21 April 2021. Carlos must begin charging VAT immediately even though the contract doesn’t begin until May because he knows that he is set to exceed the VAT registration limit in the next 30 days.
2. VAT Registration Limits
The VAT business turnover threshold determines when a UK business must register for VAT with HMRC. However, there are other thresholds and limits are in place for registered businesses whose business VAT taxable turnover may have fallen below the threshold or have chosen to opt into any of the various VAT schemes that they feel it will bring benefit in the form of cash flow, reduced VAT bills and administration. Here is a summary of the current VAT limits:
|Cash and annual accounting scheme turnover limit||£1.35m||£1.35m|
|Cash or annual accounting deregistration|
|Flat rate schemes turnover limit||£150,000||£150,000|
|Flat rate schemes deregistration turnover limit||£230,000||£230,000|
3. VAT Registration and the Self Employed
The VAT registrations thresholds apply to all businesses, regardless of their business structure so that includes the self-employed. For those running self-employed (sole trader) businesses, they will need to monitor their VAT taxable turnover in the same way as a registered business. Often, self-employed businesses consider forming a Limited Company by the time their turnover reaches this level so they can enjoy the tax benefits of incorporation.
4. What Happens Once You Go Over the VAT Limit?
Once a business exceeds VAT registration threshold, they will be required to register for VAT. That means they become responsible for charging VAT on sales to their customers at the applicable rate for their business as well as being able to claim back VAT on expenses that they have paid. Once registered, businesses need to report these numbers to HMRC usually on a quarterly basis (although monthly and annual options are available), along with paying any VAT owed.
Confused by VAT? Read this guide to find out What VAT is and How it Works
6. 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.
7. How to Apply for a VAT Exception
A business can avoid registering for VAT if their VAT business turnover temporarily goes over the VAT threshold by applying for a VAT exception from HMRC and providing evidence that the business will not exceed the VAT limit in the next 12 months.
8. VAT Threshold History
The VAT threshold is set each year as part of the UK Budget. Between 2017 to 2021 we have not seen any changes to the VAT thresholds and limits, but it has changed in previous years and may do so again in the future. Here is a summary of the VAT threshold History:
|Period||To||VAT Registration Threshold|
|1 April 2021||31 March 2022||£85,000|
|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|
9. VAT Deregistration
The VAT deregistration limit from 1 April 2017 is £83,000. That means you can deregister for VAT once the taxable turnover of your business falls below £83,000. If you are experiencing a temporary drop in turnover below the deregistration limit then you may not want to cancel otherwise you’ll need to register again because the process is irreversible.