Going Over the £90,000 VAT Threshold: Turnover Calculation and What You Need to Know

Going Over the £90,000 VAT Threshold: Turnover Calculation and What You Need to Know

As a business owner, staying on top of your financial obligations is crucial. One of the key thresholds to watch is the £90,000 VAT turnover limit. Understanding how to calculate your turnover accurately can save you from unexpected penalties and ensure your business remains compliant. Here’s a detailed guide on navigating this important aspect of your business finances.

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What is the VAT Threshold?

In the UK, the VAT threshold is the point at which you must register your business for Value Added Tax (VAT). As of 2024, this threshold stands at £90,000. If your turnover exceeds this amount in a 12-month period, you must register for VAT with HM Revenue and Customs (HMRC). Failing to register can result in significant penalties.

Calculating Your Turnover

Turnover is the total value of all taxable sales you make within a given period. This includes goods and services that would be subject to VAT if your business was VAT-registered. To calculate your turnover, add up the total value of all your sales excluding VAT.

Vat threshold 90,000

For instance, if your business sold £80,000 worth of products and £20,000 worth of services over the past year, your total turnover would be £100,000, putting you over the VAT threshold. This means you must register for VAT and start charging VAT on your sales.

Rolling Monthly Calculation

The VAT threshold operates on a rolling 12-month basis, not a calendar year. This means you must always consider the previous 12 months’ turnover, not just the current financial year. For example:

  • If your turnover from July 2023 to June 2024 was £85,000, you are below the threshold.
  • However, if in July 2024 your turnover for the period from August 2023 to July 2024 reaches £92,000, you must register for VAT as you’ve exceeded the threshold within a 12-month period.

30-Day Rule for Future Turnover

Apart from the rolling monthly calculation, if you expect your turnover to exceed the £90,000 threshold in the next 30 days alone, you must register for VAT. For instance:

  • On 1st August 2024, you sign a contract expected to bring in £95,000 by 31st August 2024. In this case, you must register for VAT by 31st August 2024.

Case Study: Avoiding Common Pitfalls

Consider the case of Sarah, who runs a small retail business. In January 2024, her turnover for the past 12 months reached £95,000. Unaware of the threshold, she didn’t register for VAT. In March 2024, HMRC conducted a routine check and found her in breach of VAT regulations. As a result, Sarah faced a fine and had to backdate her VAT payments, which significantly impacted her cash flow.

Key Dates and Deadlines

Once you realize your turnover has surpassed the £90,000 threshold, you must register for VAT within 30 days. For example, if your turnover exceeded £90,000 on 15th March 2024, you must register by 14th April 2024. Your VAT registration date will be the first day of the second month after you exceed the threshold, so in this case, 1st May 2024.

How GM Professional Accountants Can Help

Navigating VAT registration and turnover calculations can be complex. GM Professional Accountants are experts in VAT compliance and can help ensure you stay on top of your obligations. With years of experience, they provide tailored advice and support to help you manage your finances effectively.

For more detailed information, you can visit HMRC’s official VAT guidance or contact GM Professional Accountants directly for personalised assistance.

Tips for Staying Compliant

  1. Regularly Monitor Your Turnover: Keep a close eye on your monthly sales figures to ensure you don’t inadvertently exceed the threshold.
  2. Use Accounting Software: Modern accounting software can automatically track your turnover and alert you when you’re approaching the VAT limit.
  3. Seek Professional Advice: Working with accountants like GM Professional Accountants can help you stay compliant and avoid costly mistakes.

Conclusion

Staying aware of the VAT threshold and understanding how to calculate your turnover is vital for any business. By keeping track of your sales and seeking professional guidance, you can ensure your business remains compliant and avoids unnecessary penalties. If you have any doubts or need assistance, don’t hesitate to reach out to GM Professional Accountants for expert advice and support.

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