Forgetting about the VAT threshold may not be as common as forgetting to pay a phone bill, but it happens to a lot of business owners. Especially for those who handle their own paperwork, the “I didn’t realise I went over the VAT threshold!” isn’t far-fetched.
Unlike other HMRC-imposed business requirements, VAT registration isn’t automatically prescribed. And for those who choose to stay unregistered, they may unknowingly cross the threshold once their business sees a boost in taxable turnover.
But what really are the consequences of going over the VAT threshold? How will it affect your business? This complete guide from eAccounts will give you a proper walkthrough about this vital tax duty.
What Is the VAT Threshold in the UK?
Think of the VAT threshold as a line in the sand for your business. Once your sales (not profits) go over £90,000 in any 12 consecutive months, HMRC expects you to sign up for VAT.
And here’s the bit that catches most people out: it’s about turnover, not profit. So it doesn’t matter how much you’ve spent on stock, materials, or even rent. If your sales hit £90,000, even if you only keep £5,000 of it at the end of the year, you’ve crossed the line.
For example:
- Your online shop sells £92,000 worth of products.
- You spent £80,000 buying that stock.
- Your profit is only £12,000.
Still, it doesn’t matter how many gains you will pocket as long as your sales hit or exceed the £90,000 limit.
You still need to register for VAT, because your sales figure is what counts.
This is why so many business owners end up saying, “I didn’t realise I went over the VAT threshold.”
It’s not unusual, as it’s easy to miss if you’re not checking your figures regularly.
What Happens If You Go Over the VAT Threshold?
Crossing the VAT threshold is a bit like missing a speed limit sign. You might not notice it at first, but the rules still apply. Once your sales go past £90,000, HMRC expects you to register.
Here’s what that means for you:
- You’ll need to charge VAT – Once registered, you add VAT (currently 20% for most goods and services) on top of your prices.
- Backdated VAT may apply – If you went over without realising, HMRC can backdate your registration. That means you could owe VAT from the day you crossed the line, even if you never charged your customers.
- Possible fines and interest – Late registration can lead to penalties. The longer the delay, the bigger the fine.
- Quarterly returns – You’ll need to file a VAT return every three months, showing what you charged and what you reclaimed.
This can feel like a shock if you weren’t expecting it. Some businesses even end up paying VAT out of their own pocket because they didn’t add it to their sales. On the flip side, being VAT-registered does let you claim back VAT on expenses, which softens the blow if you’ve got high running costs.
Bottom line: once you’re over the line, HMRC won’t accept “I didn’t realise” as an excuse.
When Do You Have to Register for VAT?
Optional registration is permitted even when you’re below the VAT threshold. But when it comes to mandatory registration, two main situations will prompt you to be VAT-registered.
1. When your sales go over £90,000 in the last 12 months.
This isn’t tied to the tax year. It’s any rolling 12-month period. For example, if your sales between March 2023 and February 2024 add up to £91,000, you must register by the end of March 2024.
2. When you know you’ll go over in the next 30 days.
Let’s say you land a big contract worth £100,000. You must register straight away, even if your sales were only £10,000 before.
Miss either of these, and HMRC will backdate your registration. That’s when people end up in sticky situations, like having to hand over VAT they never collected.
The best way to avoid this is to check your sales regularly. Don’t just look at year-end totals. Even a simple spreadsheet or accounting software can give you a running total so you know when you’re close to the VAT threshold. Or if you’re not keen on tracking all these steps on your own, you can invest in a dependable VAT accounting service with the UK’s leading online accountants.
How to Register for VAT
With all the key questions answered, now comes the actual steps to register for VAT. But no, VAT registration isn’t the hard part. In fact, it’s so simple.
Here’s how you can register on your mobile or computer.
Step 1. Go to HMRC’s website – Most people register online through the Government Gateway. If you don’t have an account yet, you’ll need to set up your Government Gateway Account first.
Step 2: Give HMRC your details – They’ll want your business name, trading style, address, bank details, and your estimated turnover. If you’re a sole trader, it’ll be linked to your personal tax account.
Step 3: Pick your VAT scheme – The standard scheme is where you file quarterly returns. But small businesses sometimes choose the Flat Rate Scheme, which simplifies things (you pay a set percentage of your sales, instead of juggling input and output VAT).
Step 4: Wait for your VAT number – Once approved, HMRC will send you a VAT number. You’ll need to add this to invoices and update your e-commerce platforms if you sell online.
Step 5: Start charging VAT – From your registration date, you must add VAT to your prices (unless your goods are reduced-rate or zero-rated).
If you need further walkthrough, you can refer to our more detailed VAT registration guide and get more answers should you have more questions about this matter.
FAQS
1. How do I calculate my taxable turnover?
Your taxable turnover is the total sales of goods and services that aren’t VAT-exempt. Add up everything you sell before VAT and before deducting costs. It’s not your profit but your total sales.
2. Can I deregister if my sales drop below the VAT threshold?
Yes. If your sales fall below £88,000, you can apply to deregister. But some businesses stay registered anyway because they want to keep reclaiming VAT on expenses or enjoy the other benefits of being VAT-registered, like looking more “established” to clients.
3. Do I need to register for VAT if I only sell online?
Yes, the rules are the same whether you sell online, in a shop, or from your living room. If your UK sales go over £90,000, you need to register. For international sales, different VAT rules can apply (especially if you sell to the EU).
4. What’s the difference between standard, reduced, and zero-rated VAT?
Zero-rated doesn’t mean exempt. You still need to record the sales and count them towards the VAT threshold.
- Standard rate (20%) – Most goods and services.
- Reduced rate (5%) – Things like children’s car seats or home energy.
- Zero rate (0%) – Food, books, and children’s clothes.
5. What records do I need to keep once VAT-registered?
You’ll need to keep VAT invoices, receipts for purchases, and your VAT account (a record of VAT charged and reclaimed). HMRC now requires most VAT returns to be submitted through Making Tax Digital software, so you’ll also need to keep digital records.
Manage Your VAT Duties Seamlessly with eAccounts
Going over the VAT threshold doesn’t have to be the start of endless stress. At eAccounts, we keep things straightforward: we’ll tell you what needs doing, get you registered, and make sure you don’t miss a deadline.
We’ll help you register, keep on top of your sales, and stay clear of nasty surprises from HMRC. You focus on running your business, we’ll handle the VAT side of things. Simple as that.
For more information, please get in touch today! Click one of the buttons below to either ‘Get a Quote’ for your business OR ‘Book a Meeting’ with one of our experts!
