What is a VAT Threshold?

The VAT threshold is the volume of annual turnover at which businesses are required to register for value-added tax (VAT). Registering for VAT is a legal requirement for businesses that exceed this threshold, and the threshold is reviewed regularly by HMRC. The threshold has risen consistently between 2014 and 2017 but has remained the same since 2017.

You need to register for VAT if your business has earned more than the VAT threshold within any 12-month period or if you expect your VAT taxable turnover to cross the VAT registration threshold within the next 30 days. The 12-month period in question does not necessarily need to coincide with the tax year. You should regularly check whether your VAT taxable turnover for any given 12-month period has crossed the current VAT registration threshold.

However, you may choose to become VAT-registered on a voluntary basis even if your turnover does not exceed the VAT threshold. You may choose to do this because it brings a number of benefits including:

• The ability to claim back VAT costs

• The ability to claim back VAT over the past 4 years for items that are still in use

• Simply having VAT registration number can communicate a sense of size and prestige for the company

What is the current VAT registration threshold?

The current UK VAT registration threshold stands at £85,000. The government has stated that this threshold, in place since 2017, will remain unchanged until 2024.

VAT thresholds for previous years are as follows:

• 2014–2015 – £81,000

• 2015–2016 – £82,000

• 2016–2017 – £83,000

Once your business’s turnover reaches the VAT threshold, you have 30 days to register for VAT with HMRC. When this process is complete, your business has a new range of responsibilities including:

• Charging VAT on your products or services

• Paying VAT on the goods or services supplied by your vendors

• Submitting your VAT return to HMRC every year

• Maintaining a VAT account and records

Accounting for the VAT threshold

Whether you use the cash or accrual accounting method, make accounting for VAT part of your bookkeeping operations. There are several accounting schemes to help make this easier for businesses. Different schemes may be applicable depending on your annual turnover.

These are as follows:

• Flat rate VAT scheme threshold – If your annual turnover is less than £150,000, you may join this scheme to pay VAT to HMRC at a flat rate to make cash flow more predictable

• VAT Cash Accounting Scheme threshold – This works similarly to regular cash accounting, where VAT is paid and recorded when goods or services are paid for rather than when an invoice is received. You can join this scheme if your annual turnover is £1.35 million or less

• Annual Accounting Scheme VAT threshold – Here, you submit one VAT return every year and make payments towards your VAT bill in advance. This scheme is open to companies with a VAT taxable turnover of £1.35 million or less

Frequently asked questions about the VAT threshold

Can I deregister for VAT?

Yes, you may deregister for VAT if your turnover falls below the deregistration threshold of £85,000. Furthermore, if you are part of a VAT group or stop trading, you are also required to deregister, even if your turnover exceeds the VAT deregistration threshold.

What happens if I temporarily exceed the VAT threshold?

It may be that your annual turnover temporarily exceeds the VAT threshold but quickly falls well below this figure. In this instance, you may apply for an ‘exception’ to registration. In order to do this, however, you need to prove to HMRC that your taxable income from sales will remain below the VAT deregistration threshold throughout the next 12 months.