VAT threshold has risen - but don’t get caught out

It was all-change for VAT in April, when the threshold at which a business must register for VAT rose for the first time since 2017. It increased by £5,000, from a rolling 12-month turnover of £85,000 up to £90,000.

While the increase is welcome, it is relatively small, and isn’t in line with inflation; an inflationary rise would have seen the threshold at around £110,000. There are concerns that the new £90,000 threshold could still inhibit growth, as businesses, which are approaching the VAT level, may choose to dial down or plateau their output to ensure they remain beneath it. Fear of being undercut by non-VAT registered (and therefore cheaper) competitors, is at the root of this.

And while inflation is coming under control, this just means the cost of goods and services is rising less steeply. Businesses which put up their prices need to carefully monitor how near they are to that VAT threshold, and make sure they register accordingly.

However, we know that business owners are still being caught out. We supported a new client recently who had broken through the VAT threshold two years previously. That meant he then had to pay two years’ worth of VAT, which amounted to several thousands of pounds.

Our client was able to recoup some of that VAT by reinvoicing his business customers for the additional amount (as they were able, in turn, to reclaim the VAT). However, this isn’t possible if your customers are consumers, and therefore, non-VAT registered. And going back to customers asking to reinvoice for an additional sum makes for awkward conversations.

So, it is essential to keep a close eye on turnover and make sure you register in time. Last summer, it was taking HMRC to provide a VAT registration number – in some cases, this was 40 days or more. Fortunately, HMRC is generally getting these out a lot quicker now, taking away some of the stress of the wait.

If you are looking for help with VAT, or advice on if (or when) you need to register, then please get in touch with the tax team at Optimum. Email Michael Blaken: [email protected].