When you run a successful small business, it’s essential to keep an eye on your taxable turnover if it is nearing the current Value Added Tax (VAT) threshold (currently £90,000 for the 2024/25 tax year). If it creeps above the threshold for even a short period, you could become liable for VAT and be faced with paying penalties.
So, what happens if you experience a sudden spike in sales and only temporarily exceed the current VAT threshold?
It is possible to apply for an exemption if you temporarily exceed the VAT registration threshold. To be successful, HMRC require proof that your VAT taxable turnover won’t go over £88,000, known as the deregistration threshold, in the next 12 months.
This blog will look at the VAT deregistration process in more detail, explaining how to apply for an exemption.
Butt Miller is a team of tax, VAT and accounting experts with over 40 years of experience. We offer comprehensive VAT services to help you manage your VAT obligations with confidence. Speak to an expert today for advice.
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. Even if you go over the threshold temporarily, you are still expected to register.
If you believe it is a one-off occurrence, say you had an unexpected large order, you can notify HMRC to request 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 next 12 months.
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’.
You must report VAT online, notifying HMRC of what you are due to pay. Your VAT bill is calculated by reducing the VAT you’ve charged your customers by the amount you’ve paid to suppliers.
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, you must provide evidence each time that 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 grant deregistration if your business regularly exceeds the VAT threshold.
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 receive 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.
What happens if I go over the VAT threshold and don’t register?
If your total taxable turnover exceeds £90,000 and you don’t register for VAT, HMRC can backdate your registration to when you first became liable. You’ll have to pay all VAT due from that date, even if you didn’t charge it to customers, and you may face interest and penalties for late registration.
This can present a significant financial burden for a small business, especially if you cannot recover the VAT from your customers. So it’s essential to keep a close eye on your numbers and act quickly.
Is it better to stay under the VAT threshold?
If you have a small but thriving business, then it may be beneficial to keep your turnover below £90,000. That way, you can avoid the time-intensive admin involved.
As experienced VAT accountants, Butt Miller can help you determine the most appropriate VAT scheme for your small business. For many small businesses, the Flat Rate VAT scheme can be the best route as it simplifies VAT reporting, reduces administrative burden, and often allows you to keep a small percentage of the VAT collected as additional profit.
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 can 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 and ensure your VAT returns are timely and accurate.
Contact us today to find out more about our VAT accounting services.
Frequently asked questions – what if I only temporarily go over the VAT threshold?
Do I have to charge VAT once registered?
Once you are VAT-registered, you must charge VAT on all taxable goods and services you sell at the correct rate. This applies even if your turnover later drops below the threshold.
Can I recover VAT on purchases after registering?
You can usually reclaim the VAT you pay on business-related purchases and expenses. In some cases, you can also reclaim VAT on certain goods bought up to four years before registration and services up to six months before registration.
Can I deregister for VAT later?
You can voluntarily deregister if your taxable turnover is expected to stay below the deregistration threshold (£88,000) for the next 12 months. Deregistration is not automatic – you must apply to HMRC, and continue to follow VAT rules until HMRC confirms your deregistration date.
