What is the VAT threshold?

If you’re part of the Flat Rate Scheme, you must leave once your turnover goes above the compulsory deregistration threshold of £230,000.

When it comes to VAT schemes, there are specific thresholds and rules that businesses must adhere to in order to remain compliant. Whether you’re part of the Flat Rate Scheme, VAT Cash Accounting Scheme, or Annual Accounting Scheme VAT, it’s essential to understand the limitations and requirements associated with each scheme.

VAT Cash Accounting Scheme

The VAT Cash Accounting Scheme operates similarly to regular cash accounting, where VAT is paid and recorded when money changes hands, rather than when an invoice is received. To join this scheme, your VAT taxable turnover must be £1.35 million or less. However, there is a compulsory deregistration threshold, and businesses must exit the scheme if their taxable turnover exceeds £1.6 million.

Annual Accounting Scheme VAT

Under the Annual Accounting VAT Scheme, businesses submit one VAT Return per year and make advance payments towards their VAT bill. Eligibility for this scheme requires a VAT taxable turnover of £1.35 million or less. Companies participating in this scheme must deregister if their turnover surpasses the £1.6 million threshold.

How to stay under the VAT threshold

For tradesmen and businesses looking to avoid crossing the VAT threshold, there are strategies that can be employed to stay compliant. One approach is to divide your business into separate entities, each offering distinct services to differentiate them clearly. Maintaining separate bank accounts for each business can also aid in keeping track of finances and ensuring compliance.

Sole traders, in particular, may choose to remain below the threshold to avoid charging VAT. Many small businesses deliberately limit their growth to avoid reaching the £85,000 threshold, which would necessitate price increases to accommodate VAT charges.

More on VAT

When dealing with import duty and zero VAT rated goods, it’s essential to understand the implications and requirements. Importing zero VAT-rated goods may still incur import taxes, so it’s crucial to familiarize yourself with the relevant information and guidelines to ensure compliance.