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What is the VAT Threshold and when do I need to register for VAT?

VAT, or value added tax is the tax applied to products and services in the UK. If you are registered for VAT, you must charge VAT to your customers on certain sales and you may recover VAT on certain purchases. The VAT you pay to HMRC is the VAT you’ve charged your customers, less any VAT you can recover back on purchases.

HMRC stipulates that you must adhere to the following thresholds when dealing with VAT:

Thresholds Total Sales
When you must register for VAT More than £85,000
Registration for distance selling into the UK More than £70,000
Registration for bringing goods into the UK from the EU More than £85,000
When you can Deregister for VAT Less than £83,000
Completing simplified EC Sales List £106,500 or less and supplies to EU countries of £11,000 or less

There are three schemes available for VAT:

VAT accounting scheme Threshold to join scheme Threshold to leave scheme
Flat Rate Scheme £150,000 or less More than £230,000
Cash Accounting Scheme £1.35 million or less More than £1.6 million
Annual Accounting Scheme £1.35 million or less More than £1.6 million

 

  • – The Flat Rate VAT scheme helps by simplifying your VAT returns so you can simply calculate the VAT due to HMRC as a percentage of your turnover. There is a 1% discount on the Flat Rate Scheme if you start the scheme during your first year of registration.

You are only eligible for this VAT accounting scheme if your estimated taxable turnover in the next year will be no more than £150,000 and your total business income does not exceed £230,000.

  • – The Cash Accounting Scheme is different in that it bases the VAT return on payment dates for your sales and purchases as opposed to the Tax Point or invoice date. This scheme means that you do not have to pay VAT on sales that your customers are still yet to pay.

You are only eligible for the VAT cash accounting scheme if your estimated taxable turnover is no more than £1.35m, you can then stay in the scheme until £1.6m.

  • – The Annual Accounting Scheme allows you to pay VAT on account, in either nine monthly or three quarterly payments. You can complete a single, annual VAT return which is used to work out monies owed by you or due from HMRC.

You are only eligible for this scheme if your estimated taxable turnover is no more than £1.35m, and can then stay in the scheme as long as it remains below £1.6m.

You may be able to combine the annual accounting scheme with the flat rate VAT and VAT cash accounting schemes. If necessary, check with HMRC.