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.
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.
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.
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).
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.
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.
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.
ALSO IN THIS SECTION
What is Value Added Tax?
As a rule, most goods’ suppliers and service providers must charge Value Added Tax. The tax is added to the pricing of most supplies and services.
What is the VAT Registration Threshold 2022/23?
UK threshold for registration was £82,000 in 2015 and April 2016 saw another increase to £83,000. The current VAT turnover threshold 2022/23 is £85,000.
How to Change VAT Registration Details?
You must notify HMRC of any changes to a VAT registered business. Changes you need to report include business contact information and bank details.
How to Correct VAT Errors and Make Adjustments?
Always adjust your most current Value Added Tax account. You must correct errors on a past return. But, you can only do this if the errors are not deliberate and below the reporting threshold.