What is the VAT threshold in the UK?

Navigating VAT can be tricky, especially when it comes to understanding the VAT threshold in the UK and when you need to register. If your turnover creeps up to a certain level, you’ll have to start charging VAT (whether you like it or not).

So, what’s the magic number? And what happens if you only go over it temporarily? This guide will break it all down, from how the VAT threshold works to what to do if you exceed it. ✅

So, what is the VAT threshold? 

The VAT threshold in the UK is the point at which your business must register for VAT. If your VAT-taxable turnover goes over £90,000 in any 12-month period, you’ll need to register for and start charging it on your sales. 📈

This is based on a rolling 12-month period, meaning it’s not tied to the tax year or accounting period. Instead, you must look at your VAT-taxable turnover for any consecutive 12-month period, updating and keeping track of it each to avoid surprises.

If you miss the threshold and don’t register, HMRC could hit you with penalties. 🚨 

Does the VAT threshold apply to your business? 

Short answer? It depends.

The VAT threshold applies to businesses selling VAT-taxable goods and services. If you’re a sole trader, limited company, or partnership, and your taxable turnover goes over £90,000, VAT registration is mandatory.

But some businesses are exempt from VAT, including those selling:

These exemptions can make things a bit tricky, so if you’re unsure where your business falls, a quick chat with an accountant can clear things up.

How to calculate turnover for the VAT threshold 

The VAT threshold in the UK is based on your VAT-taxable turnover over any rolling 12-month period. Here’s how it works:

• Look at your total VAT-taxable sales – this includes all goods and services you sell that are subject to VAT (standard, reduced, or zero-rated).
• Ignore exempt sales – if you sell VAT-exempt goods or services (like insurance), these don’t count towards the threshold.
• Check on a rolling basis – the £90,000 threshold applies to any consecutive 12-month period, not just the tax year or your financial year.

The key takeaway? Mastering how to calculate turnover for VAT purposes keeps you in the loop with your business’s financial health and ensures you stay on top of the VAT threshold in the UK.

What happens if you stay below the threshold?

If your business stays under the threshold, you won’t have to register for VAT. 🎉

However, some businesses choose to register voluntarily to:

That said, VAT registration comes with extra admin, so if you’re well under the threshold, you might prefer to keep things simple. 😎

What happens if your business is temporarily over the VAT threshold?

If your turnover briefly goes over the VAT threshold, like from a one-off client or seasonal sales spike, you may not need to register for VAT, but you must notify HMRC! 

You have two options:

1. Register for VAT: if you expect your turnover to stay above £90,000, you must register and start charging VAT.
2. Apply for an exemption: if you’re sure your turnover will drop back below the threshold soon, you can ask HMRC for an exemption instead of registering.

Failing to notify HMRC when you exceed the threshold could result in penalties. ⚠️ Make sure you submit a clear case and evidence that the breach was temporary and that your turnover will drop back under the limit. 

VAT thresholds and accounting schemes

When your turnover hits the VAT threshold in the UK, it might be time to explore accounting schemes to make VAT admin a bit easier. Here’s a breakdown:

Both options have specific criteria, so be sure to review the eligibility and rules of each scheme and pick the one that best suits your business needs! 😎

Staying on top

Understanding the VAT threshold in the UK and how to manage your VAT obligations is essential for running a compliant business. Whether you’re registering for VAT or calculating turnover, staying proactive is key. And, if you’re uncertain about any of the processes, it’s always worth reaching out for professional tax advice. 👋