If your turnover goes over £85,000, do you have to register for VAT immediately? And once registered, do you pay VAT on all your earnings or just the amount above the threshold? Here’s what HMRC says.
Key Takeaways
As of 2024/25, the VAT threshold increased from £85,000 to £90,000 - VAT only applies to taxable sales after registration.
If your 12-month turnover exceeds £90,000, you must register for VAT within 30 days to avoid penalties.
Tracking your turnover regularly helps you stay compliant and avoid unexpected VAT bills.
What Is the VAT Threshold in 2024/25?
As of April 1, 2024, the VAT threshold 2024/25 in the UK increased from £85,000 to £90,000. This means that if your business's taxable turnover, the total income from sales not exempt from VAT, exceeds £90,000 in any 12-month period, you're legally required to register for VAT with HM Revenue and Customs (HMRC).
Once registered, you'll need to:
Charge VAT on your products or services.
Submit regular VAT returns to HMRC.
If your taxable turnover falls below £88,000, you can apply to deregister from VAT.
It's important to monitor your turnover regularly to ensure compliance with these thresholds.
RECOMMENDED READING: Understanding VAT
Do You Pay VAT on All Turnover?
No, you do not pay VAT on all turnover. VAT is only charged on taxable sales, and only after your business is VAT-registered.
Some goods and services are VAT-exempt, meaning VAT is never applied to them. Additionally, if your business is not VAT-registered, you do not charge or pay VAT on any of your turnover.
For example, if your business earns £80,000 in a year and you are not VAT-registered, you do not pay VAT on that income. If your turnover then increases to £95,000, you must register for VAT, but VAT will only apply to sales from the date of registration onward - not on the first £90,000 you earned.
Do You Pay VAT on the First £85,000?
No, you do not pay VAT on the first £85,000 (now £90,000 as of April 2024). VAT only applies after you register, and it is not retroactively charged on turnover before registration. Once registered, you must charge VAT on all taxable sales moving forward.
I Didn’t Realise I Went Over the VAT Threshold - What Now?
If your turnover goes over £90,000, you must register for VAT within 30 days after the end of the month you exceeded the threshold. If you're late, HMRC may fine you 5% to 15% of the VAT owed, with a minimum penalty of £50.
You'll also need to pay VAT on sales from the date you should have registered. This could mean charging customers VAT on past sales or covering it yourself. To avoid further issues, keep good records and consider getting professional advice.
What We Think
VAT rules can feel confusing, especially when it comes to the £90,000 threshold (previously £85,000). Many small business owners assume they’ll need to backpay VAT on their first £90,000, but in reality, VAT only applies from the date of registration onward.
While this rule helps businesses avoid sudden, unexpected tax bills on past earnings, it also means that tracking turnover closely is crucial. If you go over the threshold without realising it, HMRC may require you to pay VAT on sales you’ve already made - without the chance to charge customers extra.
How JAFA Can Help
At JAFA, we make VAT compliance simple so you can focus on running your business. Our AI technology for bookkeeping tracks your real-time turnover and alerts you before you cross the VAT threshold to help you register on time and avoid penalties.
If you have already gone over the threshold, we’ll help you register quickly, calculate any VAT owed, and ensure your records are in order. In addition to this, our tax experts can guide you on VAT schemes to reduce costs and improve cash flow.
Contact our expert accountants based in Birmingham, UK, either by booking a FREE discovery call or calling us on +44 121 227 6277.
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