VAT Registration Limits

For the current year 2017/2018 your business can turnover £85,000 before it exceeds the limit required to register for VAT. This VAT Registration Limit changes each year on 1 April, so if you run a business you should keep an eye on the annual registration limit to understand whether you have been affected.

Calculate if You Have Exceeded the VAT Registration Limit

In order to understand whether you business has exceeded the VAT Registration Limit, you must work out your taxable turnover.

What is Taxable Turnover? This is the value of your sales that would be relevant for charging 20%, excluding any sales that would be exempt from VAT  (such as insurance or some financial services). 

You must monitor your turnover if you feel you are approaching the limit because the threshold of £85,000 is based on your previous 12 month period on a rolling basis.

When Should You Let HMRC Know that You Have Exceeded the VAT Limit?

You have 30 days to notify HMRC that you have exceeded the VAT limit from:

  • the end of the month in which the limit was exceeded
  • the date on which you expect to exceed the registration limit in the next 30 days.

If you fail to notify HMRC you can face penalties and interest.

When should you begin to charge VAT to your customers?

There are two types of scenarios that, unless you have voluntarily registered for VAT, you should consider and each means a different point from which you starting charging your customer VAT.

Scenario 1: Looking Back

If you have been trading for a while but your turnover has been gradually increasing meaning you are set to exceed the VAT limit in a particular month looking back at the previous 12 months, then you must register and charge your customers VAT from the 1st day of the second month your turnover exceeded the limit.

Example:

Molly has been in business for several years and her business is growing.  She realises that she has exceeded the VAT registration limit at the end of October when she looks back at her total turnover for the previous 12 months from 1 November to 31 October. Molly must notify HMRC of this and register for VAT by 30 November. Molly will be registered for VAT from 1 December and she must charge customers VAT from this date also.

Scenario 2: Looking Forward

If looking forward you know that you will exceed the VAT limit within the next 30 days, for example you have won a large contract that means you will exceed the registration limit, then you must notify HMRC and register for VAT.  In this case you will be registered for VAT immediately and must start charging VAT accordingly.

Example:

Carlos normally has an annual income being self employed of £50,000. On 21 April a large contract is won of £50,000 to be delivered and billed in the next 30 days, meaning he exceeds the VAT limits. He needs to register for VAT by 21 May but begin charging VAT from 21 April.

VAT Limits & Rates 2017/2018

Standard rate 20%
Reduced rate, e.g. on domestic fuel 5%
Registration level from 1/4/17 £85,000
Deregistration level from 1/4/17 £83,000
Flat rate scheme turnover limit £150,000
Cash and annual accounting schemes turnover limit £1,350,000

Exception from VAT Registration

You can avoid registering for VAT if your business turnover temporarily exceeds the registration limit of £85,000.

You need to seek approval for this from HMRC by writing to them and providing evidence that your VAT taxable turnover will not go over the de-registration threshold of £83,000 in the next 12 months.  HMRC will consider your request for Exception from VAT Registration and write confirming if they agree you should be granted it.

You can write to HMRC at this address:

HM Revenue and Customs – VAT Registration Service 
Imperial House 
77 Victoria Street 
Grimsby 
DN31 1DB 
United Kingdom 

Related:

What is VAT?

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