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What is the VAT threshold for small business?

Compared to many other countries, the UK has a very generous VAT registration threshold. For small business owners, this is a big plus.

It enables them to sell a number of products or services without having to go through the hassle of registering for VAT, collecting it and passing it to the government. This makes it easier for new firms to establish themselves in the UK. It gives them a competitive edge, price-wise, as well as relieving them of a potentially time-consuming accountancy task.

The current thresholds

Currently, for firms that are registered in the UK and selling there, the threshold is £85,000. For overseas firms that sell goods in the UK, the threshold is just £70,000.

The threshold is based on the retail value of everything you sell that is subject to VAT. This is known as your VAT taxable turnover.

When you should register for VAT

You should register to collect and pay VAT as soon as you realise your turnover is likely to reach the threshold. Bear in mind that your application is likely to take a few weeks to process. So, you will need to do it before you actually reach the threshold. Your accountant can advise you regarding this matter.

How to register for UK VAT

It costs nothing to register. Provided you have an HMRC Online Services account or Government Gateway number, you can do it online via the HMRC website. If you do not have either of these, you will need to do it using the paper method.

Submitting your VAT returns

Once registered, you will be expected to fill out a VAT return every three months. At that point, you will also pay any VAT owed.

It is possible for firms with a VAT turnover of less than £1.35 million to move to an annual scheme. This is called the VAT Annual Accounting Scheme. For some firms, this can be a good idea, but it is not for everyone. Before registering for it, you really need to speak to your accountant.

Deregistering for VAT

Should your VAT turnover fall below £83,000 you can d-register.

Making Tax Digital and VAT

It is important to understand that after 1 April 2019, all VAT returns will have to be done digitally. This is part of the government’s Making Tax Digital initiative.

You will need to be ready for this change. Again, your accountant will be able to advise you and make sure everything you need is in place.

VAT and Brexit

Quite a few business owners find the current VAT regime to be onerous. So, many UK entrepreneurs are pleased to see the government actively looking for ways to simplify matters after we leave the European Union.

The government has already confirmed that in the event of a no-deal Brexit, import VAT will not need to be paid up front. Instead, it will only be payable when a firm fills out their return.

The consequences of not paying your VAT

Late payment of VAT is serious. You will end up having to pay a surcharge or between 2% and 15% for late payment. You really do need an accountant to keep track of your cash flow to make sure you always have the cash available to pay your VAT on time.

Posted by Louise
October 4, 2018

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