What if I only temporarily go over the VAT threshold?

Business temporarily going over the VAT threshold
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    Disclaimer: This article is based on legislation which was correct at time of publishing on April 15, 2024
    This page was last updated on April 15, 2024

    You must register for VAT if your business’s turnover exceeds the current threshold of £90,000. But what happens if you only temporarily exceed the threshold?

    You can apply for an exception from registration if your taxable turnover temporarily goes over the VAT threshold. If you apply for the exception, HMRC will require you to send them proof that your VAT taxable turnover won’t exceed the deregistration threshold amount (£88,000) in the next 12 months.

    At Butt Miller, we are an advanced team of tax and accounting experts with over 40 years of experience helping businesses take control of their finances. Our VAT specialists are here to get your business on the path to a smoother accounting journey that facilitates exponential growth.

    In this blog, our VAT experts are helping you understand the complex world of Value Added Tax. We’ll explain what happens if your business temporarily exceeds the VAT registration threshold and how to avoid the costly consequences by applying for an exemption. Keep reading to learn more, or speak to an expert today for advice on your business’s VAT obligations.

    What is the VAT taxable turnover amount?

    In the UK, the current VAT taxable turnover amount set by HMRC is £90,000. This is also known as the VAT threshold.

    There are specific rules and regulations required for businesses that exceed this threshold – even if it is temporary.

    What happens if you go over the VAT threshold?

    If your business has exceeded the VAT threshold in the last 12 months, or you expect it to in the next 30 days, then you are legally required to register for VAT. This means that even if you go over the threshold temporarily, you will still be expected to register for VAT.

    If you believe it is a one-off accident, you can notify HMRC requesting an exemption. However, you will need to have a reasonable excuse and be able to provide evidence that the increase in turnover will not happen again in the forthcoming months.

    Your business may temporarily go over the VAT threshold for many reasons out of your control, such as:

    • a sudden increase in sales due to marketing or seasonal changes;
    • receiving large orders from customers;
    • completing a larger-than-usual contract.

    Do you only pay VAT on turnover over the threshold?

    As soon as you register your business for VAT, you must charge VAT on any taxable services and supplies you make, regardless of whether your turnover exceeds or falls below the threshold. This also means you’ll be expected to submit a VAT return to HMRC every 3 months – also known as a ‘quarter’ or your ‘accounting period’.

    Your VAT return is a form you fill out, notifying HMRC of any VAT you are due to pay. The VAT you are expected to pay is calculated by the amount of VAT you’ve charged your customers minus the amount you’ve paid to suppliers for relevant business expenses.

    Even if you temporarily go over the threshold, you will still be expected to register for VAT and calculate your VAT returns unless HMRC accepts your appeal.

    How many times can you go over the VAT threshold temporarily?

    There is no limit to how many times you can temporarily go over the VAT threshold. However, it is essential to remember that appealing the registration requires your business to provide evidence it won’t happen again within 12 months. So, you cannot temporarily exceed the threshold more than once in a 12-month period.

    It is also important to consider that HMRC may be less likely to provide you with an exception if your business regularly exceeds the threshold for VAT.

    How do I apply for a VAT registration exception?

    To apply for the exception, you must write to HMRC with evidence showing why you believe your taxable turnover will not exceed the deregistration threshold of £88,000 in the next 12 months.

    How soon do you have to apply for a VAT registration exception?

    HMRC expects businesses to register for VAT if they exceed the taxable turnover threshold of £90,000 in the last 12 months or expect to exceed it in the next 30 days. This includes businesses that temporarily go over the threshold.

    You have 30 days from the end of the month in which you exceed the threshold to register for VAT. Otherwise, you could be affected by a late registration penalty.

    If you temporarily exceed the threshold and believe it won’t happen again in the following 12 months, then you should contact HMRC as soon as possible before the registration date.

    Is it better to stay under the VAT threshold?

    If you have a small but thriving business, then it may benefit you to operate below the VAT threshold.

    By structuring your business to keep your turnover below £90,000, you won’t need to adhere to the strict rules of being VAT-registered, such as charging VAT on sales, paying VAT to HMRC and filing endless amounts of paperwork.

    The decision to structure your business in a way that allows you to stay under the VAT threshold will depend on your individual circumstances.

    As experienced VAT accountants, we can help you decide the most suitable VAT structure for your small business. If you wish to operate below the VAT threshold entirely, we can help you set up your business in the best way to do so. Plus, if you do happen to exceed the threshold temporarily, then we will be on hand to ensure it is resolved quickly and efficiently.

    Need VAT advice? Contact Butt Miller Chartered Accountants today

    If you think you’ve accidentally gone over the VAT threshold due to a larger-than-usual boost in sales, then the experienced VAT team at Butt Miller can help. We will contact HMRC on your behalf to ensure you avoid the consequences of temporarily exceeding the threshold. Plus, when the time is right, we will be there to guide you through the VAT registration process.

    Our specialist VAT accountants are dedicated to providing unparalleled support to VAT-registered businesses. We’ll take the pressure off you by handling all-important tax and VAT responsibilities, from submitting perfectly timed VAT returns to advising you on the best VAT schemes to apply for.

    To learn about the Flat Rate VAT scheme, read our blog.

    Contact us today to find out more about our VAT accounting services.

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