What is the VAT threshold?

So you’ve been growing your business and your annual turnover is looking healthier, which means you may be wondering whether you’re reaching the VAT threshold. However, what exactly is the VAT threshold? And what changes for you and your business after you reach it?

This article will cover what the current VAT threshold is, when it applies, and what it means for businesses. If you’re considering registering for VAT or need more information before you do, you’ve come to the right place! 

What is the VAT Threshold? 

A VAT threshold is the limit of turnover your business can reach before it must sign up for Value Added Tax (VAT).

In the 24/25 tax year the VAT threshold is £90,000. This means that if your annual turnover is £90,000 and above you must register for VAT. Any business that a turnover of less than £90,000 may still register voluntarily for VAT, but it is not a legal necessity.

Once a business reaches the threshold, they have 30 days to register with HMRC for VAT and when this process is completed, the business has a few additional tax responsibilities. Such as;

• Charging VAT on the goods and services you provide to clients. 
• Paying VAT on the goods and services you buy for your business. 
• Submitting VAT returns to HMRC. 
• Keeping VAT records and a VAT account. 

Why the VAT Threshold Matters for Businesses

Crossing the VAT threshold means your business will have extra tax responsibilities, as highlighted above.

Most importantly, you’ll need to charge VAT on your goods and services. This will impact your pricing, competitiveness, cash flow and customer relationships. Essentially, your clients will be paying an additional 20% on your goods or services, so you may have to adjust your pricing strategy. Ultimately, you’ll either have to charge your customers a little more or eat into your margins. So, it’s advised to adjust your cash flow projections to include VAT, as sometimes you may need to pay the VAT to the government before you receive it from your clients or customers.

Secondly, being VAT registered means you’ll need to keep detailed records of all sales and purchases to file your returns. This can be a lot to handle for a small team or solo entrepreneur, therefore you may consider opting for an accountant or using accounting software to keep on top of your VAT and free up admin time. 
Another benefit of being VAT registered is that you can start claiming VAT back on the goods or services you’ve purchased, which can help balance costs.

Finally, some businesses may opt to voluntarily register for VAT. The advantage of this is that if your clients or customers are VAT registered your products/services become cheaper for them and visa versa.

As a small business crossing the VAT threshold can have a large impact on your daily operations, however, it’s one step closer to growing your venture into a bigger operation. The key is to plan and adjust existing plans, so you stay ahead of the changes! 

VAT Registration Process for Businesses Above the Threshold

First, you need to determine if you need to register for VAT or want to (in voluntary cases). If your business’ taxable turnover for the last 12 months is less than £90,000 you do not need to register for VAT. However, if you expect your turnover to exceed £90,000 in 30 days then you should begin to register. Of course, you can register even if your turnover is lower, this can be a benefit if you work with other VAT registered businesses.

Second, you’ll need to gather all the necessary information such as your business bank account details, your turnover figures, your Unique Taxpayer Reference (UTR) number, and your self assessment return.

Next, you’ll need to choose the right scheme – this depends on what suits your business best. There are a few VAT schemes to choose from such as Flat Rate Scheme, Cash Accounting Scheme, and Annual Accounting scheme. It's essential to do your research here or speak to a tax professional who can advise the best scheme for a business of your size and operations.

Finally, you can register and submit online using the online portal. Then, it's just a matter of waiting for your VAT registration certificate which will have your VAT number on it. This can take up to 30 days.

If you need guidance in registering for VAT, get in touch! Most VAT applications are rejected or delayed due to common mistakes, our VAT Registration Assistance can help set you up with no mistakes, ensuring you don't waste precious time and delay this crucial process.

Remember, you have 30 days after your business’ turnover exceeds the threshold to sign up for VAT. 

VAT Deregistration Threshold

If your taxable turnover falls under the £88,000 annual threshold, you can voluntarily deregister for VAT. You can also choose to deregister if your business faces changes to its structure, whether it is ceasing trading or merging with another company. 

In order to deregister, you’ll need to consistently prove your turnover for 12 months is lower than the £88,000 threshold. It is also advised to check your financial projections for the next 12 months to ensure your turnover remains below this threshold. 
Once you are sure your business is eligible for deregistration, you’ll need to notify HMRC. You can do this via your government gateway account or by filling in the VAT7 form and sending it via Royal Mail. You’ll need to provide company information, your reason for deregistration and the date you wish to cease VAT operations. 

Then, you’ll submit your final VAT return alongside your deregistration application. This return should account for all VAT sales and purchases up to your chosen date of deregistration. 

Finally, even after you deregister you must keep your past VAT records, including correspondence from HMRC, for up to six ears. This is in case HMRC wishes to review your past VAT transactions or if you are audited. 

Conclusion

Understanding the VAT threshold is crucial for business owners who want to keep compliant and avoid unnecessary penalties. By staying informed, registering on time, and being aware of how VAT obligations may impact your operations, you can keep on top of your business’ tax obligations effectively.

Most importantly, make sure you monitor your turnover closely, as it can be extremely easy to cross the threshold. If you’re approaching the limit or unsure about your obligations, seeking professional advice can provide clarity and save time — whether that’s from an accountant or a tax advisor. Taking these proactive steps will help safeguard your business and allow you to focus on growth with confidence.

Finally, if you’re looking to register for VAT but need an extra hand to make sure your application is mistake-free and ready to go, contact us! We can help make the VAT registration process hassle-free saving you time and money!