The VAT registration threshold has been fixed at £85,000 from 1 April 2017 until at least 31 March 2022. This may bring more businesses into the VAT fold, if they increase their prices with the rate of inflation.
This threshold can be a cliff edge for many businesses as, once VATable turnover exceeds it, the business must charge VAT on all eligible sales. For your UK sales, you must check the cumulative total of your VATable sales (including zero-rated items) for every 12-month period and register for VAT within 30 days, once this total exceeds £85,000.
Do this calculation every month, as if you tally up your sales just once a year for your accounts, you may miss this 30 day deadline. If your sales suddenly take off, you may be too busy to remember to register for VAT within 30 days. If you register later than the law demands, you can suffer a penalty.
For example, say your annual sales (accruing evenly throughout the year) are £83,000. If you increase your prices by 3% in January 2019, by 31 October 2019 your turnover in the previous 12 months will be £85,075 and you will have to register for VAT within 30 days.
You could restrict your price increase to keep your turnover under £85,000, but if your purchase costs are increasing this will cut your profit margins. Alternatively, you could perhaps restrict your sales by taking longer holidays, if you can afford it.
Another idea is to hive off a part of your business into a separate legal entity, so that each new business has turnover under £85,000. However, this must not be an artificial split.
The two businesses should have a bank account each, keep separate business records and file separate tax returns. Ideally, the businesses should provide different services or goods to separate groups of customers. There must be separate contracts with any common suppliers.
Many businesses, however, may wish to register for VAT earlier than needed. Early registration allows you to claim back VAT on your start-up expenses. You can reclaim VAT on services used within the six months before your VAT registration date, and on goods acquired within four years before that date (if they are still held at the date of registration). The VAT paid on an expensive shop refit could be lost if you delay VAT registration for too long.
However, it’s a balancing act “ if you register earlier than required, you must account for VAT on sales made after your registration date that could otherwise have been VAT-free.
You can’t change the VAT registration date requested once you’ve applied to register. It’s very important to plan your VAT registration, to ensure the registration date falls at the optimum time for your business.
Businesses that sell digital services (such as eBooks or software) to nonbusiness customers in other EU countries are not required to register for VAT in those EU countries, if the total value of their digital sales to other EU countries is less than £8,818. If below this threshold, they will have to charge UK VAT on the digital supplies.
If your annual digital sales to nonbusiness customers in EU countries are likely to be less than £8,818 for 2019, and were less than that threshold for 2018, you can deregister from VAT MOSS (Mini One Stop Shop) from 1 January 2019. We can help you with this. If such sales are above the threshold and a no deal Brexit occurs, businesses will need to register in an EU country for MOSS. It is best to use Eire or Malta, as their forms are in English. This can only be done post Brexit and would have to be done by the 10th of month following the month when the first post Brexit supply is made.
|Check your total sales on a 12-month rolling basis.