VAT Registration Threshold

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.

 2020/20212019/2020
VAT Registration£85,000£85,000
VAT Deregistration£83,000£83,000
Cash and annual accounting scheme
turnover limit
£1.35m£1.35m
Cash or annual accounting deregistration
turnover limit
£1.6m £1.6m
Flat rate schemes turnover limit£150,000£150,000
Flat rate schemes deregistration turnover limit £230,000£230,000
VAT MOSS£8,818£8,818

What is the VAT Registration Threshold?

The threshold for the current tax year is £85,000 and once your business’ taxable turnover reaches this amount you must register for VAT if:

  • 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.

Looking Back

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‘.

Example

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.

Looking Forward

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.

Example:

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 
Imperial House 
77 Victoria Street 
Grimsby 
DN31 1DB 
United Kingdom
 

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:

PeriodToVAT Registration Threshold
1 April 202031 March 2021 £85,000
1 April 201931 March 2020 £85,000
1 April 201831 March 2019 £85,000
1 April 201731 March 2018 £85,000
1 April 201631 March 2017 £83,000
1 April 201531 March 2016 £82,000
1 April 201431 March 2015 £81,000
1 April 201331 March 2014 £79,000
1 April 201231 March 2013 £77,000
1 April 201131 March 2012 £73,000
1 April 201031 March 2011 £70,000
1 April 200931 March 2010 £68,000
1 April 200831 March 2009 £67,000
1 April 200731 March 2008 £64,000
1 April 200631 March 2007 £61,000
1 April 200531 March 2006 £60,000
1 April 200431 March 2005 £58,000
1 April 200331 March 2004 £56,000
1 April 200231 March 2003 £55,000
1 April 200131 March 2002 £54,000
1 April 200031 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.
Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.