VAT Registration Threshold

< Archive

29 February 2024

If a business has VAT exempt income only and is not registered for VAT, there may still be a requirement to register for VAT – due to the VAT reverse charge.

post : Bookkeeping and VAT

When must a company register for VAT?

A company must register for VAT registration if:

  • total VAT taxable turnover for the last 12 months was over £90,000 (the VAT threshold)
  • turnover is expected to go over £90,000 in the next 30 days

What is VAT taxable turnover?

Taxable income in this respect is income which is subject to VAT at:

  • standard rate (20%)
  • reduced rate (5%)
  • zero rate (0%)
  • services you received from businesses in other countries that you had to ‘reverse charge’

Exempt supplies do not count towards the VAT registration threshold.

What is the effective date of registration?

If you are going to exceed the threshold in the next 30 days, you have to register by the end of that 30-day period. Your effective date of registration is the date you realised, not the date your turnover went over the threshold.

Example

On 1 May, you arrange a £100,000 contract to provide services. You’ll be paid at the end of May. You must register by 30 May. Your effective date of registration will be 1 May.

Late registration

If you register late, you must pay VAT on any sales made since the date of registration.

You might need to pay a penalty, depending on how much you owe and how late your registration is.

How would reverse charge transactions affect the VAT threshold?

The value of reverse charge services received from suppliers not established in the UK must be included when monitoring the value of taxable supplies i.e. taxable income also includes purchases which are subject to the VAT reverse charge.

Reverse charge expenses occur where a service would have had VAT on if it were purchased in the UK, but it’s been purchased from an overseas supplier that can’t charge UK VAT. Typical services subject to the reverse charge for businesses include IT services and consultancy.

Under the reverse charge procedure, the customer is treated as if they made the actual supply themselves and, as such, this creates a potential VAT registration liability as the value of the services received counts towards the VAT registration threshold. Therefore, if the value of reverse charge services together with any other taxable supplies that a business may make, is over the VAT registration limit of £90,000, the customer is required to register for VAT.

If you buy in large amounts of services from outside the UK, we recommend a review to ensure that you do not have a historic VAT registration liability and a large VAT bill, and can avoid any potential penalty issue.

For more information, visit the Gov.uk website.

The information available on this page is of a general nature and is not intended to provide specific advice to any individuals or entities. We work hard to ensure this information is accurate at the time of publishing, although there is no guarantee that such information is accurate at the time you read this. We recommend individuals and companies seek professional advice on their circumstances and matters.