6.10.2021

What is VAT Threshold? 2021 Requirements

Written by Aine Hendron

tax

Value-added tax (VAT) is a consumption tax that’s added to the cost of goods and services. Businesses only have to pay VAT once their annual turnover exceeds the VAT threshold. VAT is paid to HMRC quarterly. Out of the 5.7 million businesses in the UK, only 2.2 million are registered for VAT [1]. 

Once your business’s profits exceed the set threshold, you’ll have to register for VAT. This means you’ll be liable for collecting VAT from customers and paying VAT on goods that they’ve purchased for the business. 

Your VAT obligations will depend on a few things, such as your business structure and the location of your customers. VAT is a destination-based tax, which means that the tax rate is based on the location of the customer, not the producer or seller.

In this blog, we explain what the VAT threshold is and what it means for your business.

What is VAT threshold?

The VAT threshold is the amount of money that your business can earn before you need to register for VAT. 

When you’re registered for VAT, your business must:

  • Charge VAT on all goods and services sold to customers
  • Pay VAT on stock and merchandise that you buy for your business
  • Open a VAT account and keep a record of VAT
  • Submit VAT returns to HMRC

The current VAT threshold in the UK is £85,000. This means that all businesses that earn annual sales above £85k must register for VAT, charge VAT on their goods and services, and pay VAT on goods and services bought for their business.

Standard rate VAT in the UK is charged at 20%, and the reduced rate is 5%.

When should I register for VAT?

If you predict that your taxable profits will exceed the threshold within the next 30 days, you should register for VAT. The same goes if you have recently bought a business that is already VAT registered.

You must apply if your business has made more than £85,000 over the last 12 month period. It’s important to note that the 12 month period doesn’t have to align with the calendar year or the tax year - it’s just any 12 month period.

There’s no threshold if neither you nor your business is based in the UK. However, you must register for VAT as soon as you supply any goods in the UK (or if you expect to in the next 30 days). You will still need to pay tax if your store is online only and trades within the UK.

Businesses based in Northern Ireland

You’ll need to register if you sell merchandise that is exempt from VAT or ‘out of scope’, but only if you buy goods worth more than £85,000 from EU VAT-registered suppliers to use in your business [2].

VAT deregistration

Businesses can deregister for VAT if it can prove to HMRC that taxable turnover in the next 12 months will not exceed the deregistration threshold. The current deregistration threshold is less than £83,000. 

Your business might be able to deregister for VAT if you registered with the intention to make taxable supplies, but no longer intend to. Or, if you once made taxable supplies but have stopped and won’t in the future. 

In some cases, you can deregister if the company is sold, or if the business structure changes. In both instances, it’s normally possible to retail the old VAT number and keep it for the new business or structure [3].

What if I’m not registered, but my business crosses the VAT threshold temporarily?

If your taxable profits exceed the threshold temporarily, you can apply for a registration exemption.

If this happens, you must write to HMRC with evidence showing why you believe your VAT taxable turnover will not go over the deregistration threshold of £83,000 in the next 12 months.

HMRC will consider your exception and confirmation if you get one. If not, they’ll register you for VAT. If you continually exceed the threshold, HMRC will charge you what you owe from the date you should have registered.

You might get a penalty depending on how much you owe and how late your registration is.

What is the current UK VAT threshold?

The VAT is reassessed yearly and typically increases every year. In 2017, the VAT threshold was extended. The 2017-2018 VAT threshold, £85,000, still applies to the current 2021-2022 tax year and will remain in place until at least April 2022.

The HMRC show the current VAT threshold on their website [4]:

Circumstance

VAT Threshold

VAT registration

More than £85,000

Registration for distance selling into Northern Ireland

More than £70,000

Registration for bringing goods into Northern Ireland from the EU

More than £85,000

Deregistration threshold

Less than £83,000

Completing simplified EC Sales List

£106,500 or less and supplies to EU countries of £11,000 or less

 

Organising your tax records

It’s vital that you keep proper VAT records of all input on output tax. Your tax records should be accurate down to the last penny, and consistently up-to-date. 

You’ll need these records to comply with your legal obligations, to show to HMRC if or when asked, and to make it easy when filling in your VAT returns and to get money back. For this reason, it’s recommended that you keep your VAT records for at least six years [5].

VAT records for Making Tax Digital

In April 2019, a new rule was introduced that businesses that exceed the VAT registration threshold must keep VAT records in digital format, linked to VAT returns submitted by HMRC-approved software.

VAT returns made simple

When using EPOS Now’s point of sale systems, you have access to an extensive app store full of helpful tools. Integrate with your preferred accounting and bookkeeping apps for quick, convenient invoicing. 

  • Sage One: Sage is a top online accounting software ideal for start-ups and small businesses. Over 3 million customers rely on the program for payroll, banking, and synchronizing purchases with your Epos Now system.
  • Xero: Xero is an online accounting program designed specifically for small businesses. The platform handles invoices, bill payments, taxes, reporting, and more.
  • Quickbooks: If you want a cloud-based, easily accessible accounting tool, look no further than Quickbooks. Their system helps minimize clutter by digitally tracking receipts and paperwork.

These apps all offer VAT software that is Making Tax Digital compliant.

With Epos Now, you can also:

  • Create and send invoices using simple templates and a built-in VAT calculator
  • Receive and pay ongoing invoices automatically
  • Review profitability reports based on individual product performance, trending items, best and worst sellers, and employee sales
  • View sales analyses on profit margin, cash flow, and other expenses
  • Access multi-award-winning inventory management systems that sync online sales and in-person sales for the most up-to-date stock levels
  • Automate stock purchasing, so you never miss a sales opportunity
  • Save customer contact details and shopping preferences for more targeted marketing on our CRM system
  • Integrate with the business automation apps that are right for your business
  • Simplify employee management for more efficient scheduling and payroll

Call Epos Now today to learn more about our POS accounting software integrations

You might also want to read... 

What is a Proforma Invoice?

What Are The New Domestic Reverse Charge Regulations?

 

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