On 6 March, Jeremy Hunt delivered his Spring Budget, cutting national insurance, creating a British ISA, and scrapping the non-dom tax regime. He also announced an increase in the VAT registration threshold.

Let’s go over what the change to that threshold means.

VAT explained

VAT is a sales tax that certain businesses have to apply to some of the goods and services they sell. Different products have different rates, depending on how necessary the government deems them to be. Those rates are:

  • Standard rate (20%): This applies to most goods and services.
  • Reduced rate (5%): This reduced rate typically applies to items such as domestic fuel and power, children’s car seats, and energy-saving materials.
  • Zero rate (0%): Examples include most food items, and children’s clothing and footwear.
  • Exempt: Purchases such as healthcare and education are exempt from VAT. That means you don’t have to include them on your VAT return.

The business in question applies these rates to their products, collecting the tax from customers. It then has to pass the money to HMRC via a VAT return – while adhering to Making Tax Digital rules.

The VAT threshold

Only certain businesses have to worry about VAT, which are the ones that have a turnover that exceeds the VAT threshold. This has been set at £85,000 since 1 April 2016. From 1 April 2024, this threshold is now £90,0000.

So, if you have a turnover above £90,000, you are required to register for VAT with HMRC or if you think you’ll go over the threshold in the next 30 days.

If your turnover was £90,000 by the end of any month in the last year, then you also have to register. You have to register within 30 days of the end of the month when you exceed the threshold. Your effective date of registration is the first day of the second month after you go over the threshold.

Your turnover is the total value of everything you sell that is not exempt from VAT. It also includes:

  • zero-rated goods
  • goods you hired or loaned to customers
  • business goods used for personal reasons
  • goods you bartered, part-exchanged or gave as gifts
  • services you received from businesses in other countries that you had to “reverse charge”
  • building work over £100,000 your business did for itself.

You must also register for VAT (regardless of VAT taxable turnover) if all of the following are true:

  • you are based outside the UK
  • your business is based outside the UK
  • you supply any goods or services to the UK (or expect to in the next 30 days).

Expert assistance with VAT compliance

Navigating VAT regulations and compliance requirements can be a complex and time-consuming task. Fortunately, professional assistance is available to simplify the process and ensure compliance with VAT obligations. As experienced VAT advisers, we offer comprehensive guidance and support to businesses of all sizes.

Our services include VAT registration assistance, VAT return preparation, and ongoing compliance management. We work closely with clients to understand their unique needs and tailor our services to suit their requirements. Whether you’re a small business approaching the VAT threshold or a large enterprise seeking efficient VAT management solutions, we’re here to help.

Talk to us about VAT.