VAT Threshold: Tax Efficient Top Tips

VAT ThresholdThis article provides details on the current VAT threshold for UK taxable sales with examples of how the threshold for VAT is calculated. Plus some great VAT tips.

Please note that the below thresholds for registering for VAT or joining a VAT accounting scheme are valid from 1 April 2015.

What is the VAT threshold

Different countries have different VAT thresholds. However, if you are trading in the UK the VAT registration threshold is currently £82,000 of taxable sales. This means that if you have sales that would be subject to zero or standard VAT you need to the check the level of sales in a 12 month period to see if it is under or over the VAT threshold.

VAT Thresholds 2015

Circumstance Threshold
VAT registration More than £82,000
Registration for distance selling into the UK More than £70,000
Registration for bringing goods into the UK from the EU More than £82,000
Completing simplified EC Sales List £106,500 or less and supplies to EU countries of £11,000 or less

VAT Accounting Scheme Thresholds 2015

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

VAT Threshold Example

Helen has a sole trader business providing beautician services and also trains other beauticians. If the training/education Helen is provided by a sole proprietor (which in this case it is) the tuition is exempt for VAT purposes, however, the beautician services are taxable supplies.

Her total sales for the last month is

£84,000 so she is concerned that she should have been VAT registered, however, upon analysis of the sales, £65,000 of the sales relate to beautician services and

£19,000 relate to training.

Therefore only the £65,000 counts towards the threshold, so she is still within the VAT threshold, and does not have to compulsorily register for VAT.

What if I have a variety of sales

If you have a mixture of sales, some of which would be exempt from VAT and some that are subject to VAT then you just calculate if you have reached the VAT threshold by measuring the amount of sales that are subject to VAT. Zero and standard rated goods or services are considered taxable supplies, however, exempt goods or services are non-taxable supplies.

Can I split my businesses

If you genuinely have a variety of trades then you could incorporate the separate businesses, for example you might have a coffee shop and a consultancy business. Please note that you shouldn’t artificially separate your trades to avoid being over the VAT threshold, if HMRC decide that you have done this they can decide that the entire business is a single taxable person and therefore must be registered for VAT.

Top VAT Tips

  • Review your business to see if it is more suitable for cash or accrual VAT accounting.
  • If your business is under £150,000 revenue consider whether the Flat Rate VAT scheme may be best for you.
  • If you are at the cusp of being near the VAT threshold make sure you check your figures every month, as HMRC can look at any 12 month period, not just your usual tax year.
  • If your business has shrunk recently, review whether it is still appropriate to be VAT registered. If your business is to the general public your prices may be more attractive if you don’t have to charge VAT.
  • Make sure you have a good system for calculating VAT, unless you have a very low number of transactions we would recommend that you use a basic accounting system, such as Sage One, QuickBooks or KashFlow.

Historical Previous VAT Thresholds – Registration limits for taxable supplies

Before 21 March 1990 the rules were different. You had to look at your past and future taxable turnover when deciding whether you needed to register. There was also a yearly limit and a 3-monthly limit.

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2016-10-23T17:24:25+00:00 August 25th, 2012|Tax|9 Comments

About the Author:

Nicky Larkin
Nicky Goringe Larkin is a Chartered Management Accountant who founded Goringe Accountants Ltd. - British Accountancy Awards 2013 Runners Up and awarded 'Highly Commended' accolade. Nicky is also Chair of the regional Federation of Small Businesses (FSB) as she is passionate about ensuring that Small Business issues are heard at the local and national level.
  • Ian

    How different do your businesses have to be then, to count as seperate entities?

  • HMRC give various examples/rules in section 13.5 of the following link : http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000086&propertyType=document#P556_61743

    A good example i recently had was a hotel which had setup a cafe within it, if the cafe had been setup separately it would have been considered an artificial separation as it was in the same location and had the same owners.

  • Hema Patel

    It has become quite common to buy and sell products among the EU countries and the rest of the world. When you register for VAT it is important to be aware of the VAT regulations relating to movement of these goods.

  • Vamshi

    Hi Nicky,

    Is this VAT Threshold calculated per Tax year of company like anniversary of incorporation? Say incorporated in 01 June 2012 then would it be calculated from 1 june 2012 to 01 June 2013?

    Sorry but couple of more question which may be silly but I will ask anyway…

    And if I wanted to smoothly go from No VAT to VAT registered with Flat Rate Scheme what would be the process? Do I need to do separate applications for getting VAT Registered and getting into Flat Rate Scheme VAT?

    Do I need to inform my Current Clients before I go VAT Registered?

    I am worried that I apply for VAT Registration and it takes a month to get the VAT number but would my client accept invoice with VAT from Date of registration supplied during application?

    • VAT threshold is calculated on a rolling basis. If you are near the cusp you should check every month to see if you have nearly reached it or not.

      You can now register online for flat rate when you register for VAT.

      It is up to you if you notify your clients or not, however, if they are not VAT registered themselves it would be a good idea to warn them.

      You can either register for a future date or supply a revised invoice once you have received your VAT registration. VAT registrations often only take 1 week, just depends on the queue and whether you are selected for spot checks.

  • Sam

    if you are a sole trader and you pay other sole traders under the CIS scheme (together with tax) does this get taking out the count towards the threshold for example £85000, £17000 CIS payments? please advise, many thanks

    • Nicky Larkin

      Hi Sam. The VAt threshold is based on your turnover, if you operate under the CIS scheme this will be the gross amount you bill a client which, is what you receive plus the CIS deduction.

    • Yes the gross amount should be considered.