An explanation of VAT

I have noticed lately that we are having more clients needing to register for VAT and I think this is a trend that will continue.

As the cost of living goes up, and the prices increase then total income will also increase, but the VAT threshold of £85,000 has remained the same since 2017.  It is not due to be increased until the end of March 2026.

This means it is more important now to keep a close eye on your turnover to avoid crossing the threshold and having to backdate the VAT registration.

VAT registration is based on a rolling 12 month period of sales, not the tax year, or the accounting year.  This can catch people out as they only look at their sales on their accounts, but you need to look at a ROLLING 12 months to see if you cross the VAT threshold.

What happens when you hit the VAT threshold?

Once you cross the VAT threshold, you are required by law to register for VAT within 30 days of the end of the month when you went over the threshold.  Your effective date of registration is the first day of the second month after you go over the threshold.

So, for example, you cross the VAT threshold during the month of December 2023.  You must register by 31st January 2024, and your effective date of registration (the point when you have to start charging your clients VAT) is 1st February 2024

There are VAT schemes that can help with the VAT accounting.  But if you register for VAT, you will need to submit VAT returns each quarter via an MTD compliant software.  Here at Turas Accountants, we use Xero to complete the bookkeeping and submit all VAT returns.  There are other software’s available, and you can sometimes get them free with your bank!

VAT returns are generally required quarterly, and you will need to account for all of your sales VAT (usually charged at 20%), and all of your purchase VAT.  You will offset one against the other and pay the difference across to HMRC.  VAT returns have to be submitted to HMRC 5 weeks after the VAT quarter end – you will be advised of these dates when you register for VAT.

If you don’t register for VAT at the correct time, you can find that you have to back date to the registration point, and will then have to shoulder the VAT on all of your sales, so this can become a very costly mistake/oversight.

Even if you don’t keep on top of all of your bookkeeping, you should at the very least total up your sales on a monthly basis, and keep track of this on a rolling 12 month basis.

Are you thinking of becoming VAT registered but have some unanswered questions? Get in touch with us today!