VAT taxable turnover - What is VAT taxable turnover?
VAT taxable turnover refers to the total value of sales a business makes that is subject to tax after any VAT-exempt amounts are removed
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Taxable turnover for VAT is an important calculation to understand as it can determine whether your business is required to register for VAT in the UK. The term ‘turnover’ is often confused with ‘profit’ though the two are decidedly different.
Where ‘profit’ refers to the amount that remains after you have paid the necessary expenses. Turnover refers to the net amount over a certain period of time. In the case of taxable turnover, this is typically the previous 12 months (this can be any 12 month period, not necessarily the tax or fiscal year).
What is excluded from taxable turnover?
When it comes to VAT taxable turnover, you might have several income streams for your business. In some cases, entire income streams are VAT-exempt. This includes:
- Income earned through providing financial services or through insurance sales
- Income from rental properties or from the sale of buildings
- Income earned through lottery, betting, or gaming
There are certain situations in which items or supply streams are also not included in taxable turnover:
- Goods or services with UK origin that are considered tax-exempt
- Any income that would be considered outside the VAT scope, such as grants
- Services with a supply origin that is outside the UK
The industry that your business is in can also have a big impact on what income is excluded and what is considered taxable turnover. If you are in doubt, it is best to get in touch with an accountant to best assess the situation of your business.
According to HMRC, VAT-exempt sales, as well as goods and services supplied to customers outside of the UK can also be excluded.
What should be included in taxable turnover calculation
There are a few things that HMRC has made clear should be included when determining the taxable turnover of a business.
- Goods that were gained for your business through barter, exchange, or as gifts
- Goods that were loaned or renting to customers
- Any goods for the business that were also for personal use
- Any goods received from abroad that fall under the ‘reverse charge’
- Building done by and for your business over £100,000
- Zero-rated items should also be included
How to calculate taxable turnover
Turnover is a fairly simple calculation that can be done regularly and can be a good indicator of the financial health of the business. The turnover of a business should be easy to determine with accurate records: add together the total sales for a given period.
To determine the VAT taxable turnover, you would then need to subtract any amounts that can be excluded (are not subject to VAT). This should give you a good idea of where your business stands when it comes to the threshold. You can likely then break it down to determine what your next few months will look like (especially important in the case that you are close to the threshold).
What do I do if my taxable turnover is above the threshold?
If, according to your calculations, the taxable turnover of your business is above the VAT threshold of £85,000 (2017/18), then it is required that your business be VAT registered. This can be done pretty simply through HMRC.
It is then also required, as of April 1st, 2019, that you use HMRC-approved software to submit your VAT returns online, to comply with the requirements of Making Tax Digital.
There are some time restraints to registering for VAT: you have 30 days to inform HMRC once you notice that your taxable turnover for the 12 previous months falls above the threshold.
Becoming VAT registered will not only have an impact on what you can claim but may also affect the prices of your business offerings. Keep this in mind when it’s looking like you’re close to the threshold.
Different taxable turnover thresholds
There are different VAT thresholds depending on specific circumstances. While the general VAT registration threshold is £85,000, this number differs if you are distance selling, or wish to deregister, for example.
VAT taxable turnover under Making Tax Digital
With the arrival of Making Tax Digital in April 2019, it’s more important than ever that businesses have a good understanding of their current taxable turnover. Not only will businesses over the current threshold be required to register for VAT, but they will also need to find HMRC-approved Making Tax Digital software for record-keeping as well as to submit VAT returns online.
VAT taxable turnover and Debitoor
To get ahead of the curve and make it easy to register, manage, and submit VAT returns, getting started using accounting & invoicing software like Debitoor can help.
It’s easy to enter payments, add expenses, and more from anywhere. And with tax enabled in your account, calculations are made automatically. Debitoor also offers a Making Tax Digital connection that is approved by HMRC, making it easy for you to comply with a click.