- Businesses must register for VAT if their taxable turnover exceeds £90,000 in a rolling 12-month period or is expected to exceed this threshold in the next 30 days.
- Zero-rated goods and services are included in taxable turnover calculations, even though VAT is charged at 0%. This differs from VAT-exempt sales, which are excluded.
- Accurate record-keeping of monthly taxable income ensures businesses can track their turnover and register for VAT on time.
- Failure to monitor taxable turnover and register for VAT on time can result in penalties, starting at 5% of VAT owed for delays under 9 months, increasing up to 15% for delays over 18 months.
What is VAT taxable turnover?
VAT taxable turnover for VAT is the total income a business earns from selling goods and services that are not VAT-exempt or outside the scope of VAT. It is the metric that determines whether a company exceeds the VAT registration threshold, currently £90,000, within a rolling 12-month.
How do I calculate VAT turnover?
To determine if your business has reached the VAT registration threshold, calculate the total income received on taxable supplies over a rolling 12-month period, including:
- Revenue from goods and services sold, hired out, exchanged, or given away. Include items charged at standard, reduced, or zero VAT rates.
- Goods from your business that you take out for personal use.
- The value of services received from overseas businesses where you apply the reverse charge.
- Expenditure on construction services that fall under the domestic reverse charge rules.
- The value of construction work you perform for your business exceeds £100,000.
Ensure you track these accurately to meet VAT registration requirements and avoid penalties.
Rolling basis means that if you calculate the income at the end of each month, look back and determine if you’ve gone past the threshold, excluding the 1st month of the former 12-month period.
See also: What is the construction industry scheme (cis)?
What is the gov.uk VAT registration turnover?
In the UK, businesses need to register for VAT if their taxable turnover exceeds £90,000 within a rolling 12-month period. This is the current VAT registration turnover threshold set by HMRC, and businesses must monitor their turnover regularly to ensure compliance with VAT registration requirements.
When should a business register for VAT?
A business must register for VAT once its taxable turnover exceeds the threshold on a rolling 12-month basis. For example, if the total taxable turnover for the previous 12 months is £100,000 on October 10, the business must register by November 30, with an effective registration date of December 1.
Additionally, a business must register if it expects its taxable turnover to exceed £90,000 within the next 30 days. In this case:
- Registration must be completed by the end of that 30-day period.
- The effective registration date will be the date the business anticipates surpassing the threshold.
Failure to register on time can result in penalties, so monitoring turnover regularly and acting promptly when required is essential.
You will need your Government Gateway ID and password to access and complete your VAT registration form online, along with a comprehensive list of your business activities, among other requirements. Once registered, you will receive a 9-digit VAT registration number, which must be included on all your invoices.
Related: VAT Checker UK
What are the deadlines for making VAT returns?
VAT returns are typically submitted quarterly, with specific deadlines based on the reporting period. The schedule is as follows:
- Quarter 1 (Q1): January 1 – March 31; returns must be submitted by April 7.
- Quarter 2 (Q2): April 1 – June 30; VAT returns deadline is July 7.
- Quarter 3 (Q3): July 1 – September 30; the deadline for making returns is October 7.
- Quarter 4 (Q4): October 1 – December 31; VAT return must be made by January 7.
Find out more: UK Tax Year Dates and Filing Deadlines
Can I claim VAT back when I am not VAT registered?
If you are not VAT registered, you are outside the VAT system. As a result, you cannot claim VAT on any goods or services you purchase. Being outside the VAT system means:
- Your business does not charge VAT on sales.
- You do not have a VAT number.
Only VAT-registered businesses can reclaim input VAT (the VAT paid on purchases) by offsetting it against output VAT (the VAT charged on sales). If you are not registered, VAT on expenses becomes a cost to your business.
How do I determine if I will exceed the threshold within the next 30 days?
To determine if your business will exceed the VAT registration limit (£90,000) within the next 30 days:
- Keep an accurate and up-to-date record of the income that counts towards the VAT registration threshold. This includes tracking all taxable sales of goods and services.
- Review your turnover regularly to ensure it reflects your total taxable income over the past 12 months.
- Predict whether your income will surpass the threshold in the coming 30 days based on income trends.
By staying proactive with your record-keeping and forecasting, you can identify when you are nearing the threshold and ensure timely registration to avoid penalties.
You can track your monthly income by maintaining a clear record of:
- Turnover for each month: The total taxable income generated in the month.
- Rolling 12-month turnover: The cumulative total of taxable income over the most recent 12 months.
- Threshold compliance: A column indicating whether your business has breached the VAT registration threshold (currently £90,000).
Below is an example table to illustrate how to maintain such records.
| Month | Turnover | Rolling 12-Month Total | Threshold Breached? |
|---|---|---|---|
| Month 1 (April Year 1) | £6, 000 | £6, 000 | No |
| Month 2 (May Year 1) | £7, 500 | £13, 500 | No |
| Month 3 (June Year 1) | £8, 000 | £21, 500 | No |
| Month 4 (July Year 1) | £10, 000 | £31, 500 | No |
| Month 5 (August Year 1) | £12, 000 | £43, 500 | No |
| Month 6 (September Year 1) | £15, 000 | £58, 500 | No |
| Month 7 (October Year 1) | £16, 000 | £74, 500 | No |
| Month 8 (November Year 1) | £18, 000 | £92, 500 | Yes |
| Month 9 (December Year 1) | £10, 000 | £102, 500 | Yes |
| Month 10 (January Year 2) | £14, 000 | £116, 500 | Yes |
| Month 11 (February Year 2) | £11, 000 | £127, 500 | Yes |
| Month 12 (March Year 2) | £9, 000 | £136, 500 | Yes |
| Month 13 (April Year 2) | £12, 000 | £142, 500 (Excludes April Year 1) | Yes |
| According to the illustration above, by Month 7, the business owner should have a clear indication of whether they are likely to breach the VAT registration threshold in the following month. This proactive monitoring allows for timely action and ensures compliance with VAT regulations. | |||
The effective date for VAT registration is the first day of the month following the month in which the VAT threshold was exceeded. This date establishes your accounting period and sets the deadlines for submitting your VAT returns.
Are there any penalties for late registration?
Yes, penalties apply if you fail to register for VAT on time. You must account for any VAT owed from the effective date; late registration can lead to penalties.
HMRC calculates penalties based on the VAT owed, which is determined by subtracting input tax from output tax, and applies a percentage penalty based on the delay in registration. The penalty rates are:
- Up to 9 months late: 5% of the VAT owed
- Between 9 and 18 months late: 10% of the VAT owed
- Over 18 months late: 15% of the VAT owed
- The minimum penalty is £50, regardless of the time delay.
Which goods or services are VAT exempt or out of scope?
Certain goods and services are exempt from VAT, meaning they are not subject to VAT charges. Examples include:
- Insurance, finance, and credit services
- Education and training
- Fundraising events organised by charities
- Subscriptions to membership organisations
- The sale, lease, or rental of commercial land and buildings (though this exemption can be waived)
These exempt items are not taxable, and their sales are not included in VAT-taxable turnover calculations. Additionally, VAT cannot be reclaimed on exempt goods or services purchases.
Exempt goods and services differ from zero-rated supplies. While VAT is not charged on both, zero-rated goods or services are still considered taxable but with a 0% VAT rate. Therefore, zero-rated sales are included when calculating taxable turnover.
- If your business deals exclusively with exempt goods or services, it is classified as exempt, and you cannot register for VAT or reclaim VAT on expenses.
- If your business sells zero-rated goods or services, you can register for VAT and reclaim VAT on related expenses.
Some goods and services are out of scope of UK VAT system. VAT cannot be charged or reclaimed on these items. Examples of out-of-scope goods and services include:
- Goods or services bought or used outside the UK
- Statutory fees, such as the London congestion charge
- Goods sold as part of a hobby (e.g., collectible stamps)
- Donations to a charity provided nothing is received in return
Understanding the difference between VAT-exempt, zero-rated, and out-of-scope items is essential for accurately managing your VAT obligations.
How is taxable turnover calculated over a rolling 12 month period?
Calculating your turnover on a rolling 12-month period involves continuously calculating your taxable turnover by adding VATable sales over the past 12 months. Here’s how it works:
- Each month, add your taxable supplies from the previous 12 months.
- Compare the total against the VAT registration threshold. If the threshold is exceeded, you must register for VAT.
- After completing each new month, remove the sales from the first month of the 12-month period and add the sales from the most recent month. This ensures the calculation always reflects the most recent 12 months.
What are the penalties for non-compliance with making tax digital for VAT?
Making Tax Digital (MTD) employs a points-based system to promote compliance. Penalty points are issued for specific non-compliance actions, such as:
- Late submission of VAT returns
- Failure to maintain digital records
- Not using digital links to transfer VAT data
The penalty threshold is reached after accumulating four penalty points for any violations related to quarterly VAT returns. A £200 fine will be imposed upon reaching this threshold.
If non-compliance continues after reaching the threshold, an additional £200 fine may be applied for each instance.
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