VAT threshold – What is the VAT threshold?

The VAT threshold, also known as the VAT registration threshold, is the amount of money you can earn before you need to register for VAT.

Is your turnover above the current VAT threshold? Create VAT invoices in under 1 minute with SumUp Invoices.

You’ll need to register for VAT if:

  • You expect your VAT taxable turnover to cross the VAT registration threshold within the next 30 days, or;

  • You have earned more than the VAT threshold over any 12-month period

Bear in mind that this 12-month period doesn’t have to align with the tax year, so you should regularly check whether your VAT taxable turnover for the last 12 months has crossed the current VAT registration threshold.

How much is the UK VAT threshold?

In the UK, the VAT registration threshold is currently £85,000 (2021), and the most recent UK VAT thresholds are:

  • 2014-2015: £81,000

  • 2015-2016: £82,000

  • 2016-2017: £83,000

  • 2017-2021: £85,000

The VAT registration threshold is set on a yearly basis, and the threshold for registering for VAT usually increases each year.

However, in 2017, the VAT threshold was extended. This means that the 2017-2018 VAT threshold (£85,000) still applies in the current 2021-2022 tax year and will remain in place until April 2022 at the earliest.

What happens once I meet the VAT threshold?

If your taxable turnover crosses the current VAT threshold, you have 30 days to inform HMRC and register for VAT.

Once your company has completed its VAT registration, your business will be responsible for:

  • Charging VAT on the goods and services you sell to customers

  • Paying VAT on the goods or services you buy for your business

  • Submitting VAT Returns to HMRC

  • Keeping VAT records and a VAT account

What happens if my business is temporarily over the VAT threshold?

If your business’s taxable turnover is temporarily over the VAT threshold, you may not need to register for VAT. You can instead apply for a registration ‘exception’.

Your taxable turnover is considered to be temporarily over the VAT threshold if you can prove to HMRC that your taxable sales will stay below the VAT deregistration threshold over the next 12 months.

For example, you sell £87,000 worth of products between January 1st and December 31st 2020, and you can demonstrate that you’ll only sell £82,000 worth of goods between January 1st and December 31st 2021. 

You are therefore considered to be only temporarily over the VAT threshold, and HMRC can make an exception from registration.

VAT deregistration threshold

Although you’re required to register for VAT if your turnover goes above the VAT registration threshold, there’s no compulsory VAT deregistration threshold, and companies with a turnover of less than £85,000 can still be voluntarily registered for VAT.

However, if you do want to cancel your VAT registration, your turnover must fall below the VAT deregistration threshold, which is currently £83,000.

In addition, companies that join a VAT group and businesses that stop trading are required to cancel their VAT registration, even if their turnover is above the VAT deregistration threshold.

VAT thresholds and accounting schemes

There are several different VAT accounting schemes, which allow participating businesses to manage their VAT in different ways. For each of these schemes, there are specific VAT thresholds.

The VAT thresholds for accounting schemes work slightly differently from the threshold for VAT registration. Whereas the VAT registration threshold requires businesses to register for VAT once their taxable turnover reaches a certain amount, VAT accounting schemes are optional, and the thresholds for each scheme set an upper limit on how much a company much earn in order to be part of the scheme.

Flat Rate VAT Scheme threshold

The VAT Flat Rate Scheme is a way of paying VAT whereby businesses pay HMRC a fixed rate.

Tho join the VAT Flat Rate Scheme, you must have a taxable turnover of less than £150,000. If you’re part of the Flat Rate Scheme, you must leave once your turnover goes above the compulsory deregistration threshold of £230,000.

VAT Cash Accounting Scheme threshold

The VAT Cash Accounting Scheme follows the principles of cash accounting, which means that VAT is recorded and paid when money changes hands, rather than when an invoice is sent or received.

To join the VAT Cash Accounting Scheme, you must have a VAT taxable turnover of £1.35 million or less. There’s a compulsory deregistration threshold, and you must leave the scheme if your taxable turnover is more than £1.6 million.

Annual Accounting Scheme VAT threshold

Under the Annual Accounting VAT Scheme, businesses submit one VAT Return per year and make advance payments towards their VAT bill.

You can join the scheme if your VAT taxable turnover is £1.35 million or less. Companies participating in the Annual Accounting VAT Scheme scheme must leave when their turnover crosses the £1.6 million deregistration threshold.

VAT Threshold and SumUp Invoices

SumUp Invoices makes it easy for small businesses, freelancers, and sole traders to manage their invoices and sales, whether or not they're registered for VAT.

If your turnover is below the VAT threshold and you haven't voluntarily opted-in to VAT registration, you can simply turn off VAT in your account settings. But if your turnover goes above the VAT registration threshold, you can easily turn it on. You'll be able to set the correct VAT rate for specific products and send VAT invoices that contain all of the necessary information about VAT.

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