Is your business VAT registered?

It's easy to get caught out by the VAT registration threshold if you're operating a relatively new business. When starting up your business the thought of reaching a threshold of £85,000 may have seemed a distant dream but you'd be surprised how quickly you might have got there.

It doesn’t matter what sort of business you operate as this applies to all traders, irrespective of sector; sole traders, partnerships, and limited companies. All are obliged to register to charge and pay VAT once annual sales reach a pre-set annual threshold. You also need to be aware that the threshold operates on a month-by-month basis and not annually. You need to check at the end of each month to make sure your business hasn’t gone over the limit in the previous twelve months.
The threshold for being liable for VAT which has been in place since 2019 is £85,000 for the year.The annual VAT threshold is determined by total sales and be aware that this isn’t the same as total profits (which is generally sales minus expenses). A business can make a loss and still need to register for VAT!In summary, a business must register if:

  • its taxable outputs, including zero-rates sales (but not exempt, non-business, or ‘outside the scope’ supplies),have exceeded the registration threshold in the previous 12 calendar months – unless the business can satisfy HMRC that its taxable supplies in the next 12 months will not exceed a figure £2,000 below the registration threshold (so currently £83,000); or
  • there are reasonable grounds for believing that the business’s taxable outputs in the next 30 days will exceed the registration threshold; or
  • the business takes over another business as a going concern, to which the two bullet points above apply.

The month-by-month basis also works by looking forward, so it’s equally important at the end of each month to consider whether the limit will be exceeded in the following twelve months. If it is anticipated that total sales may exceed the VAT threshold, the business needs to register.

Where registration is required, HMRC must be notified:

  • within 30 days of the end of the relevant month (past sales condition); or
  • by the end of the 30-day period (expected sales condition).

If the business does not register with HMRC within the specified time limit, a penalty will be charged, which can eventually be up to 15% of the VAT owed – in addition to the actual VAT due.

Voluntarily registration

A business can register for VAT even if its turnover (total sales) is below the threshold and it may actually save tax by doing so, particularly if its main clients or customers are organisations that can reclaim VAT themselves.

If you’re uncertain about the best approach to VAT registration for your business give our VAT experts a call today to discuss how we may be able to assist you and keep your business on the right side of HMRC.

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