The VAT threshold refers to the minimum annual turnover that businesses must reach before they are required to register for value-added tax (VAT). As of 2019-2024, the UK VAT registration threshold is set at £85,000, which has remained unchanged since 2017. However, prior VAT thresholds were as follows: 2014–2015 – £81,000, 2015–2016 – £82,000, and 2016–2018 – £83,000. Once a business’s turnover exceeds the VAT threshold, it has 30 days to register for VAT with HMRC and bear added responsibilities such as charging and paying VAT, submitting VAT returns, and keeping VAT accounts and records.
It is vital to register for VAT once a business reaches the threshold to avoid legal penalties. Even if your small business has exceeded the VAT threshold momentarily, it is a legal requirement to register for VAT within 30 days of crossing this line. Keep a close eye on your business turnover on a regular basis, regardless of the 12-month period, as the VAT threshold is measured on turnover. An exception can be applied for not registering for VAT if your turnover exceeds the threshold temporarily due to a one-off event, or there’s no likelihood of it happening again in the near future.
If your business turnover is less than £85,000, it is still possible to register for VAT voluntarily. The benefits include becoming more cost-effective for VAT-registered customers, who could claim VAT back on purchases, and claiming VAT on the costs of setting up. To reduce VAT liability and smooth out payments, consider joining schemes such as the Flat Rate Scheme, VAT Cash Accounting Scheme, or Annual Accounting Scheme VAT.
Staying under the VAT threshold can be difficult for tradespeople, but splitting your business into separate entities offering distinct services is one solution. Finally, being aware of zero-VAT rated goods and import duties is crucial.