With several bills increasing and more and more resources becoming scarce, now more than ever, production costs in the economy are rising. As a business owner, knowledge of the VAT and the threshold for registration is necessary so that one can be right with UK tax laws.

VAT Current Registration Thresholds

VAT is a consumption tax levied on the value added at each stage of production wherein businesses reclaim VAT for expenses incurred but must then meet the registration requirements of HMRC.

When Should You Register for VAT?

• It needs to be registered for VAT when: 
• It has a turnover in the financial year that exceeds £90,000. 
• It anticipates that sales would exceed the £90,000 in the next 30 days or less. 

Also mandatory is the VAT registration of overseas businesses providing goods or services to UK customers. 

Voluntary VAT Registration

Those whose annual turnover is below £90,000 can voluntarily register in order to recover VAT from business expenses. 

How do I calculate the turnover for VAT purposes?

The VAT turnover of HMRC includes those from taxable sources like:

•     0% rated heavy goods, such as bread, milk, and vegetables
•     Reduced-rated: 5% (e.g., children’s car seats, home energy, fuel)
•     Standard rated: 20% (e.g. most goods and services) 

Besides, even though used for private purposes, gifted in exchange, and business service taken in compliance with the domestic reverse charge scheme would also be rental income.

What happens if you exceed the VAT threshold? 

If your taxable turnover exceeds £90,000, you will have to register for VAT within 30 days, with the VAT registration date being the first day of the next month after you have reached that point.

VAT and Takeovers of Businesses 

When you acquire a business that is registered for VAT, and if it continues to run above the threshold, you will have to register for VAT in case you have not done so until the threshold is reached. If you have not yet done so, you have to pay VAT for the sales after the application date.

What happens when you exceed the VAT threshold for a short time? 

Businesses temporarily exceeding the turnover threshold of £90,000 may apply to HMRC for a registration exemption by submitting a VAT1 form. If the exemption is granted by HMRC, no VAT payments will be necessary. VAT registration will continue to be necessary otherwise.

UK VAT Categories 

HMRC outlines the three main VAT categories: 

• Zero-Rate VAT: These include the essentials of food and drink, medicinal products, and sewer services. 
• Reduced-Rate VAT (5%): These cover home energy, energy-efficient materials, and mobility aids for the elderly. 
• Standard-rate VAT (20%): This applies to most of the goods and services in the UK. 

Need expert VAT guidance? 

Tax-Pert Accountants can provide expert VAT advice so your business stays compliant. We have solutions for VAT registration, tax planning, and professional accounting services. Please get in touch with us if interested!

Contact us today for a consultation!

Conclusion

VAT registration in the United Kingdom is a prerequisite for running a business. A company: must apply for VAT provided its annual turnover exceeds £90,000; must pay VAT to HMRC. A temporary rise in turnover may, by using VAT1, allow for the exemption. Knowledge of categories of VAT and relevant thresholds ensures compliance and avoidance of penalties.

Disclaimer:

The article serves to provide general information pertaining to VAT registration thresholds. What it does not provide is professional financial advice. Consult your certified tax advisor for individualised assistance.