If your turnover has crept up recently, you may be approaching (or have exceeded) the VAT threshold without even realising it.
In some cases, all it takes is one big project to push you over the edge.
It can be a costly mistake to wait until you prepare your end-of-year accounts before you check if your turnover has reached the VAT threshold. You could stand to lose a lot of money (we’ll explain later).
Even if you are good at keeping your books up to date, you may not be aware of exactly how to calculate the last 12 months of turnover, so if you are unsure, drop us a message and we can help.
When should I register for VAT?
The VAT threshold for 2023/24 is currently set at £85,000. You should register for VAT, if EITHER your total VAT taxable turnover for the last twelve months has reached £85,000, OR if you expect it to do so within the next 30 days.
Alternatively, you can also choose to register for VAT if your turnover is less than £85,000. This is called voluntary registration. There are various reasons why a business should volunteer for VAT registration, we’re more than happy to discuss if this is something that might benefit your business.
Exactly which 12 months am I looking at? Financial/tax year? My business’ accounts year?
It is a common misconception that the ‘12 months’ referred to by HMRC relates to the current tax year (6th April 2023 to 5th April 2024). Unfortunately, this is not the case. It is also not related to the 12-month period of your business accounts. Businesses can be easily caught out by this simple misunderstanding of the HMRC guidance.
In actual fact, the 12 months HMRC refers to is more easily understood as a 12-month rolling period. A rolling 12-month VAT period is any 12-month period of trading. At the end of each month, you will take your latest month and add it to the total figure and remove the oldest month. So rather than looking at a 12-month accounting period or tax year, a rolling period looks back at the previous 12 months of trading.
Help, I am late to register for VAT! My total VAT taxable turnover for the last 12 months was over £85,000!
If you’ve failed to register for VAT with HMRC on time, you will face penalties. It’s important to act quickly to reduce the penalties that you will incur.
Penalties are calculated based on how much VAT is due as well as how late you were registering. The VAT that you owe from the point of registration will also be added to your penalty, so registering late can be very expensive.
You will be required to include VAT on all sales back to the date the business should have registered. That stands, even if no VAT was charged to your customers at that point. If most of your customers are VAT registered, this shouldn’t be too much of a problem, as you can raise a VAT only invoice to your customer and collect the payment. However, this could still cause cash flow problems depending on how quickly your customer pays the invoice.
If most of your customers aren’t VAT registered, you cannot charge the VAT onto them, but you still need to pay that VAT to HMRC. Not only can this cause cash flow problems as mentioned above, but the additional costs will reduce your profits.
We hope we’ve helped clear up a few things for you about VAT, but if you have any questions about VAT registration or need help with any VAT issue, get in touch with us for a free consultation.
Call us on 01536 850940 or email hello@littlehouseaccountants.co.uk
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