VAT threshold – What is the VAT threshold?
The VAT threshold, also known as the VAT registration threshold, is the amount of money you can earn before you need to register for VAT.
Is your turnover above the current VAT threshold? Find out more about working with Debitoor as a VAT-registered company.
You will need to register for VAT if:
- You expect your VAT taxable turnover to cross the VAT registration threshold within the next 30 days, or;
- You have earned more than the VAT threshold over any 12-month period.
Bear in mind that this 12-month period does not have to align with the tax year, so you should regularly check whether your VAT taxable turnover for the last 12 months has crossed the current VAT registration threshold.
How much is the UK VAT threshold?
In the UK, the VAT registration threshold is currently £85,000 (2020), and the most recent UK VAT thresholds are:
- 2014-2015: £81,000
- 2015-2016: £82,000
- 2016-2017: £83,000
- 2017-2020: £85,000
The VAT registration threshold is set on a yearly basis, and the threshold for registering for VAT usually increases each year.
However, in 2017, the VAT threshold was extended for two years, and in the 2018 Autumn Budget it was again confirmed the VAT threshold would remain the same for another two years. This means that the 2017-2018 VAT threshold (£85,000) still applies in the current 2020-2021 tax year and will remain in place until April 2022 at the earliest.
What happens once I meet the VAT threshold?
If your taxable turnover crosses the current VAT threshold, you have 30 days to inform HMRC and register for VAT.
Once your company has completed its VAT registration, your business will become responsible for:
- Charging VAT on the goods and services you sell to customers
- Paying VAT on the goods or services you buy for your business
- Submitting an annual VAT Return
- Keeping VAT records and a VAT account.
What happens if my business is temporarily over the VAT threshold?
If your business’s taxable turnover is temporarily over the VAT threshold, you may not need to register for VAT. This is known as exception from registration.
Your taxable turnover is considered to be temporarily over the VAT threshold if you can prove to HMRC that your taxable sales will stay below the VAT deregistration threshold over the next 12 months.
For example, you sell £87,000 worth of products between January 1st and December 31st 2018, and you can demonstrate that you will only sell £82,000 worth of goods between January 1st and December 31st 2019. You are therefore considered to be only temporarily over the VAT threshold, and HMRC can make an exception from registration.
VAT deregistration threshold
Although you are required to register for VAT if your turnover goes above the VAT registration threshold, there is no compulsory VAT deregistration threshold, and companies with a turnover of less than £85,000 can still be voluntarily registered for VAT.
However, if you do want to cancel your VAT registration, you turnover must fall below the VAT deregistration threshold, which is currently £83,000.
In addition, companies that join a VAT group and businesses that stop trading are required to cancel their VAT registration, even if their turnover is above the VAT deregistration threshold.
VAT registration thresholds for imports and exports
The £85,000 VAT registration threshold only applies to UK-based businesses selling within the UK. There are different rules and thresholds for British businesses that sell to customers abroad and for foreign businesses that sell to the UK.
For foreign companies that sell to customers in UK, the rules you need to follow depend on:
- Whether your company is based in the EU
- Whether your customers are registered for VAT
- Whether you sell excise goods.
UK VAT threshold for distance selling
Distance selling is when an EU-based company sells goods to customers that are based in another EU country but are not registered for VAT.
You will need to register for UK VAT if the value of the distances sales you make to the UK crosses the VAT registration threshold. The current UK VAT threshold for distance selling is £70,000.
If you sell excise goods, such as alcohol or tobacco, you need to register for Excise Duty and UK VAT regardless of whether your sales cross the UK VAT threshold for distance selling.
VAT thresholds for sales to EU countries
If you run a UK-based business that sells goods to customers in other EU countries, you will may need to register for VAT abroad.
Each EU country has its own VAT threshold for distance selling, and you will need to register for VAT in every country in which your distance sales cross the VAT registration threshold.
For example, you run a UK-based business and have customers in Belgium and Germany, where the VAT thresholds for distance selling are €35,000 and €100,000 respectively. Over the last 12 months, you sold €40,000 worth of taxable goods in each country. You crossed the VAT registration threshold in Belgium but not in Germany, so must only register for VAT in Belgium.
VAT thresholds and accounting schemes
There are several different VAT accounting schemes, which allow participating businesses to manage their VAT in different ways. For each for these schemes, there are specific VAT thresholds.
The VAT thresholds for accounting schemes work slightly differently to the threshold for VAT registration. Whereas the VAT registration threshold requires businesses to register for VAT once their taxable turnover reaches a certain amount, VAT accounting schemes are optional, and the thresholds for each scheme set an upper limit on how much a company much earn in order to be part of the scheme.
Flat Rate VAT Scheme threshold
The VAT Flat Rate Scheme is a way of paying VAT whereby businesses pay HMRC a fixed rate.
Tho join the VAT Flat Rate Scheme, you must have a taxable turnover of less than £150,000. If you are part of the Flat Rate Scheme, you must leave once your turnover goes above the compulsory deregistration threshold of £230,000.
VAT Cash Accounting Scheme threshold
To join the VAT Cash Accounting Scheme, you must have a VAT taxable turnover of £1.35 million or less. There is a compulsory deregistration threshold, and you must leave the scheme if your taxable turnover is more than £1.6 million.
Annual Accounting Scheme VAT threshold
Under the Annual Accounting VAT Scheme, businesses submit one VAT Return per year and make advance payments towards their VAT bill.
The threshold for joining the scheme is a VAT taxable turnover of £1.35 million. Companies participating in the Annual Accounting VAT Scheme scheme must leave when their turnover cross the £1.6 million deregistration threshold.
VAT threshold Ireland
The VAT registration threshold in Ireland depends on several different factors, such as whether your company is based in Ireland or abroad and whether you supply goods or services. The current VAT threshold in Ireland is:
- €37,500 for businesses that supply services only
- €75,000 for businesses that supply goods only
- €75,000 for businesses that supply both goods and services and generate more than 90% of their turnover by supplying goods
- €35,000 for businesses that make distance sales to Ireland
- €41,000 for businesses that make acquisitions from other EU countries
Like in the UK, businesses with a turnover below the compulsory VAT registration threshold in Ireland can still voluntarily register for VAT.
VAT threshold South Africa
The current VAT threshold in South Africa is R1 million. You will need to register for South African VAT if you have earned more than R1 million in the last 12 months or if you expect your turnover to cross the VAT registration threshold.
Unlike in Ireland and the UK, not all businesses can register for VAT if they have a turnover below the VAT registration threshold in South Africa. To voluntarily opt-in for VAT, South African companies must have a minimum turnover of R50,000.
VAT Threshold and Debitoor
Debitoor invoicing software makes it easy for small businesses, freelancers, and sole traders to manage their invoices and accounting, whether or not they're registered for VAT.
If your turnover is below the VAT threshold and you haven't voluntarily opted-in to VAT registration, you can simply turn off VAT in your account settings. But if your turnover goes above the VAT registration threshold, you can easily turn it back on. You'll be able to set the correct VAT rate for specific products and send invoices that contain all of the necessary information about VAT.
Plus, most businesses with a taxable turnover above the VAT threshold are required to use software to submit online VAT Returns and keep digital records. Debitoor has been approved by HMRC as authorised Making Tax Digital software, meaning that users on our larger plans are able to submit their VAT Returns directly to HMRC in just a few clicks.