Value-added tax (VAT) is a kind of tax that is levied on consumption rather than income. It occurs when a product is taxed as it becomes more valuable through the supply chain – meaning from production to the point of sale. Since it is a consumption tax, VAT is applied equally to everyone who avails of the product or service. This article is gonna be focusing on the VAT threshold.
Its objective is to simplify the process of collecting tax. Proponents of this tax argue that imposing VAT is fair because it can be imposed on all types of businesses in the same way.
The VAT Threshold
Although VAT is known for its equal application, It is important to note that not all businesses are required to sign up for VAT. The VAT threshold or the VAT registration threshold is the amount that a person needs to earn before he or she is required to register for VAT.
In the UK, the VAT threshold is £85,000. There are several requirements for VAT registration. First, a business is required to register or for VAT if the records indicate a VAT taxable turnover of more than this amount over any 12-month period. The VAT taxable turnover refers to the sum of all goods and services sold that are not VAT exempt.
The 12-month timetable is an important aspect of knowing if a business needs to register for VAT. This period applies to any 12-month period and does not specifically refer to the accounting period or the business’s tax year.
Additionally, a company must register for VAT if it is expected that the VAT taxable turnover exceeds £85,000 in the next 30 days.
The VAT registration threshold is typically set yearly, with the VAT threshold increasing every year. However, the current rate of £85,000 in the UK was set in 2017 and applicable until April 2022.
Meeting the VAT Threshold
If a business meets the threshold, it has 30 days to register for VAT. Completion of registration gives rise to several responsibilities. The most significant is that VAT is charged upon the goods and services that are sold to clients. Businesses must keep a record of these sales, and an annual VAT return is filed.
Different accounting methods in the UK can be used for keeping a record for VAT. The method used depends on a specific VAT threshold. Note that these thresholds are different from the thresholds for VAT registration. VAT registration refers to when a business registers for VAT, while VAT accounting thresholds refer to the upper limit on how much a business has to earn before it can use a particular accounting method.
For example, the flat rate VAT requires a taxable turnover of less than £150,000. In the VAT Cash Accounting Method, which means that the VAT is recorded and paid when there is a transfer of money rather than the sending of the invoice, it needs a VAT taxable turnover over £1.35 million or less. Finally, in the Annual Accounting Method, businesses only need to submit one VAT Return annually, and the company makes advance VAT payments. In this case, the VAT taxable turnover requirement is £1.35 million or less.
Other Vat Related Topics are the following:
Suppose you seek more VAT and Tax update or more business planning to fit into the present world situation snugly. In that case, Annette & Co. is here to offer you a FREE consultation. Annette Ferguson – Chartered Accountant and Certified Profit First Professional – can help you unlock financial strategies to improve the profitability of your business amidst an economic crisis.