CALCULATING VAT TURNOVER: Exactly what is the VAT threshold?

The total VATable sales value is the sum of everything you have sold, less any sales tax exempt items.

You must get VAT Registration if taxable turnover exceeds the current VAT turnover threshold. As a rule, the upper margin goes up each year in April.

Unlike a calendar year (Jan 1 to Dec 31) or the government tax year (April 6 to the next April 5) it can be any 12-month period.

Reaching the UK VATable limit can occur in any 12 month rolling period.

For example: A trading period can start at the beginning of any month, such as the 1st of September to the 31st of August. It is not a fixed term!

Note: The current VAT threshold 2022 is £85,000. Any changes become effective from 1st of April each year. But, different thresholds apply for importing or exporting goods from EU countries.

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What is VAT Taxable Turnover Definition?

Business income usually creates an amount of taxable turnover for VAT. It is this ‘taxable turnover‘ VAT revenue which HMRC considers most relevant in the UK.

Taxable turnover for VAT applies when a business supplies goods or services with a VAT rate of 0% (or greater). HM Revenue and Customs terms these sales as ‘supplies’. You must include these business sales and purchases in your VAT Return.

What if your business provides goods or services which are VAT exempt or ‘out of scope‘? In this case there is no need to include these items in a UK VAT Return.

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VATable Items to Include in the VAT Threshold

Check whether you have exceeded the 12-month period threshold by adding up all UK sales that are not exempt.

VATable sales items include:

• Any items lent or rented to clients or any products you use for your own personal use.
• Gifts and goods used in bartering or part-exchanged.
• ‘Reverse charge‘ goods and services from other companies operating outside the United Kingdom.
• Certain items while undertaking business building work (e.g. if the open market value of labour is over £100,000).

VAT Exclusions United Kingdom
You should include zero-rated items in your threshold list. But, you can exclude products that you sell outside of the UK and any sales of VAT exempt goods.

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Going Over the VAT Threshold

VAT certification is law if your 12 month VATable turnover exceeds the threshold. But, you can apply for an ‘exception from VAT registration‘ if you consider it to be a temporary ‘blip’ in turnover.

It is important to check your VAT turnover on a regular basis. Monthly is a good idea because late registration can lead to financial penalties.

Note: There is no time limit to register if you expect the company turnover to be, or realise, over £85,000 in a 30 day period. Remember to exclude Vat-exempt goods from the calculation of taxable turnover.

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VAT Turnover Threshold for Previous Tax Years

You can check references on the government historical information about VAT thresholds. It is useful if you think you should have registered in previous tax years.

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Backdating Claims for VAT

You can claim for VAT that you paid on goods before your registration. Time limits run from your official date of registration and they are:

• 6 Month Limit: For certain types of services.
• 4 Year Limit: If you still have the product or you used it in a product that you still keep as stock.

Purchases must apply to your ‘business purpose‘. Businesses can only reclaim VAT on things bought if they are relevant to goods or services that the company sells.

You should make this reclaim on your first VAT Return. List the items you are reclaiming in Box 4 of the return form.

Note: Remember to keep invoice records and receipts with the description and purchase date. You will also need to show how they are relevant to your business.

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