23 November 2017
So the budget has seen the VAT registration threshold held at £85,000 for the next two years (April 2018 to April 2020)
The Treasury estimates this measure will bring a further 6,000 businesses into the VAT regime by 2020. Clearly, freezing a threshold whilst not factoring in inflation will inevitably mean more businesses breach the threshold.
Don’t panic! It is perhaps a good time to remind ourselves of the VAT registration threshold rules.
VAT Registration Threshold
The VAT registration threshold is calculated on a rolling 12 month basis, not on a financial or calendar year. So we take your turnover from November 2017 back to November 2016 and if that figure is more than the VAT threshold, then you have a legal requirement to register for VAT.
There are some sales which are not subject to VAT such as supplies of healthcare and education, but you probably already know what the VAT status of your supplies are anyway. But if you are unsure, then now is the time to qualify the status of your supplies. Zero rated is not the same as exempt, exempt sales do not count towards the registration threshold, but zero rated sales do.
The main point here is that the calculation is performed monthly, if you wait until year-end accounts preparation, you may already have gone over the threshold without knowing it. Make this monthly check part of your book-keeping process, if not already doing so.
Threshold Example
Your turnover from November 2016 to November 2017 was £80,000, so at the end of November 2017, you are below the VAT registration threshold. Doing the same for December 2016 to December 2017, your turnover is now £88,000 so you now must register for VAT. The way the legislation works, you have 30 days from breaching the threshold to notify HMRC/register for VAT, so this mean you breach threshold in December 2017, you have 30 days (January 2018) to notify, with VAT registration taking effect 01st February 2018.
Making Tax Digital
From April 2019, Making Tax Digital, intends for VAT registered traders to submit their records electronically. So your choice of accounting software is worth considering at this stage so that you don’t have to consider it again in 2018 ahead of the 2019 changes on how you file your VAT return data.
At present, the Making Tax Digital requirements only applies to compulsory VAT registered businesses (businesses which have exceeded the VAT registration threshold), businesses can voluntarily register for VAT, even where their turnover is below the compulsory registration threshold, these businesses would not, so far, be obliged to comply with Making Tax Digital, for now.
Don’t leave this to chance, getting it right at the start will save time and money later, so speak to your advisors or speak to us, our VAT advice is not as expensive as you think. VAT.tamworth@hwca.com
