What are the VAT Registration Thresholds?

In today’s era, production costs are much higher due to limited resources available and huge costs of utility bills. Being an owner of a goods production company, you must have an idea of VAT and current thresholds for mandatory VAT registration in the UK.

 

Current Thresholds for Mandatory VAT Registration

VAT stands for value-added tax. It is a consumption tax that is estimated based on the value added in each stage of good production. All businesses get a tax credit for the VAT they pay to the government. VAT is only paid by the company, not the end customer.

When to Register for VAT?

A company in the UK must register for VAT when:

• The total turnover of the company in a financial year is above £90,000
• And the company will have an estimated turnover of £90,000 in the coming 30 days.

VAT registration is mandatory when:

• The company is based outside the United Kingdom
• The owe is based outside the UK
• And the company is applying its goods and services to the UK

The limited company or small business can register itself for VAT if its annual profit turnover is less than £90,000. This is called voluntary registration. The companies must pay the due VAT amount to HMRC after the date of VAT registration.

Calculating VAT Turnover

There is a limit set by the HMRC for the collection of VAT. After this limit, the companies are liable to pay due VAT. The taxable turnover of VAT includes zero-rated goods such as bread, milk, and vegetables and reduced-rated (5%) goods such as children’s car seats, home energy, and fuel. There are certain standard-rated goods (20%), including most goods and services.

The total VAT turnover is also calculated on the business goods that the company uses for personal reasons and goods exchanged as gifts and services the company is receiving from other businesses. The turnover is also calculated on goods and services that come under the domestic reverse charge. The building work of more than £100,000 done by the company also comes under due VAT.

What If You Exceeded the Threshold in the Last 12 Months?

As mentioned earlier, the threshold for taxable VAT is when your taxable turnover goes beyond £90,000. In such cases, the company has to register for VAT within 30 days of the turnover. The date of VAT registration is the first day of the next month when you go beyond the threshold value of £90,000.

What If You Take Over a VAT-Registered Business?

If a business owner takes over a business that has already registered for VAT, but their current turnover goes beyond the threshold limit of HMRC, then they must register for VAT again. If a business or a limited company registered late for VAT, the due date limit set by HMRC, then you are liable to pay VAT on the sales after the date of application for registration.

What If You Go Over the Threshold Temporarily?

If the annual turnover of a company goes beyond the threshold amount, the company can apply for a registration exception by contacting the HMRC. The company needs to provide proof of the temporary turnover beyond the threshold value. The HMRC evaluates the exemption applications submitted through the VAT1 registration form; if accepted, the company will not pay VAT; if not, the company is liable to pay VAT to HMRC.

What are VAT Categories?

Below are the three categories of VAT defined by the HMRC

1- Zero-Rate VAT

The goods and services under zero-rate VAT are Aircraft repair and maintenance, Houseboats — sale or let out on hire, Incontinence products, Magnetic tape adapted for recording speech for blind people together with apparatus for making and playing the adapted tape and certain low-vision aids, most of the basic food and drink items such as bread, butter, milk, fruits and vegetables. Sewerage services are supplied to domestic or industrial customers and water services are also included.

2- Reduced-Rate VAT

This category includes Energy-saving materials permanently installed in dwellings and buildings used for a relevant residential purpose, Mobility aids for the elderly, heating oil gas and electricity for domestic use.

3- Standard-Rate VAT

It applies to general services and goods produced in the United Kingdom.

 

Conclusion

VAT stands for value-added tax, which is based on each stage of good production involved. The threshold of annual turnover for companies is £90,000. Going beyond this limit, the companies need to register at HMRC and pay the due taxable amount within 30 days of turnover. However, if the annual turnover is temporary, the company can apply for a registration exemption from HMRC with all proof. The registration exemption is applied through the VAT1 form.

Disclaimer: All the information provided in this article on VAT registration thresholds, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.