It was all-change for VAT in April 2024, when the threshold at which a business must register for VAT rose for the first time since 2017. It increased by £5,000, from a rolling 12-month turnover of £85,000 up to £90,000.
While the increase last year was welcome, it was relatively small, and isn’t in line with inflation; an inflationary rise would have seen the threshold at around £110,000. There are concerns that the new £90,000 threshold could still inhibit growth, as businesses, which are approaching the VAT level may choose to dial down or plateau their output to ensure they remain beneath it. Fear of being undercut by non-VAT registered (and therefore cheaper) competitors, is at the root of this.
And while inflation is coming under control, this just means the cost of goods and services is rising less steeply. Businesses which put up their prices need to carefully monitor how near they are to that VAT threshold, and make sure they register accordingly.
However, we know that business owners are still being caught out. We supported a new client recently who had broken through the VAT threshold two years previously. That meant he then had to pay two years’ worth of VAT, which amounted to several thousands of pounds.
Our client was able to recoup some of that VAT by reinvoicing his business customers for the additional amount (as they were able, in turn, to reclaim the VAT). However, this isn’t possible if your customers are consumers, and therefore, non-VAT registered. And going back to customers asking to reinvoice for an additional sum makes for awkward conversations.
So, it is essential to keep a close eye on turnover and make sure you register in time. Some clients get confused, thinking the 12 month period runs from one accounting year to another. However, it is always on a rolling 12 month basis. For example, start January 2024 to December 2024, totalling each month, check you’re not over the threshold. Next, you add to this total January 2025 but take off January 2024 – therefore still only a 12 month consecutive period. If you have any concerns here, please contact the team as we have a very simple to use spreadsheet which can help you check.
If you are looking for help with VAT, or advice on if (or when) you need to register, then please get in touch with the tax team at Optimum. We work with business owners in the Swindon, Wiltshire, Cheltenham and Gloucestershire area.
