Understanding the VAT Threshold: When and Why to Register
In the UK, the Value Added Tax (VAT) threshold determines the annual turnover at which businesses must register for VAT. As of June 2024, the threshold is £85,000, set to increase to £90,000 on April 1, 2024, as announced by Chancellor Jeremy Hunt.
Historical VAT Thresholds:
2014–2015: £81,000
2015–2016: £82,000
2016–2018: £83,000
2019–2024: £85,000
Upon exceeding the VAT threshold, businesses have 30 days to register with HM Revenue and Customs (HMRC). Post-registration, businesses are obligated to:
Charge VAT on taxable goods and services.
Maintain accurate VAT records and invoices.
Submit regular VAT returns to HMRC.
Some businesses opt for voluntary VAT registration even before reaching the threshold. This can enhance credibility and allow for VAT reclamation on purchases. However, it also introduces additional administrative duties.
To legally remain below the VAT threshold, businesses might:
Monitor turnover closely to avoid exceeding the limit.
Adjust pricing strategies or service offerings.
Consider splitting the business into separate entities, though this must be done in compliance with HMRC regulations to avoid penalties.
It’s crucial for businesses to weigh the pros and cons of VAT registration and implement strategies that align with their financial goals and compliance requirements.