VAT rate
There are different rates of VAT that apply to different types of goods and services, some goods and services that are exempt from VAT.
There are three VAT rates:
VAT registration threshold
If you're in business, you must register for VAT if your VAT taxable turnover for the previous 12 months is more than £82,000. This figure is known as the VAT registration threshold. The threshold changes - usually once a year announced in the Budget - so you should regularly check your turnover against the current threshold.
You must also register for VAT if either of the following applies:
Deregistration threshold
The deregistration threshold is £80,000. If your VAT taxable turnover for the year is less than or equal to £80,000, or if you expect it to fall to £80,000 or less in the next 12 months, you can either:
If you want to cancel your VAT registration you must write to HM Revenue & Customs (HMRC) to explain why your turnover has fallen. For example, you might have reduced your opening hours or lost contracts. You'll also have to give an estimate of your turnover for the next year.
Remember that your VAT taxable turnover includes only the goods and services you sell that you have to charge VAT on, even those that are zero-rated. It doesn't include sales that are exempt or outside the scope of VAT.
Thresholds for VAT accounting schemes
In contrast to standard VAT accounting, there are several alternative ways you can account for VAT that could save you time.
Some of these VAT accounting schemes have been designed for specific trade sectors. Others have been designed to deal with more generic business issues.
Flat-Rate Scheme
If you use standard VAT accounting, you have to record the VAT on every sale and purchase you make. You could simplify your VAT accounting by using the Flat Rate Scheme if both of the following are true:
Once on the scheme you may continue to use it to account for VAT until your total business income exceeds £230,000.
Read more about VAT Flat Rate Schemes
Cash Accounting Scheme
If you use standard VAT accounting, you have to pay HMRC the VAT you charged on your sales whether or not your customer has paid you. If you use cash accounting, you only pay VAT when your customer pays you. However, you can only re-claim VAT once you've paid your suppliers.
You can use cash accounting if you estimate that your turnover during the next tax year will be no more than £1.35 million.
Once you're using cash accounting, you can keep using it until your turnover exceeds £1.6 million.
Read more about cash accounting for VAT
Annual Accounting Scheme
If you use standard VAT accounting, you'll have to complete a VAT Return and pay any VAT due, or get any refunds, quarterly. You can reduce your paperwork and make it easier to manage your cash flow by using the Annual Accounting Scheme.
If you use the scheme then you:
Once you're using annual accounting, you can keep using it until your turnover is more (or is likely to be) than £1.6 million.
Read more about the Annual Accounting Scheme for VAT
Retail schemes
If you're a retailer, and you can't account for VAT in the normal way, you can simplify your VAT accounting by using a retail scheme. A retail scheme can be standard or bespoke.
You can use one of the published schemes if your annual retail turnover - excluding VAT - is under £100 million. There are lower limits for some standard schemes. If your turnover is higher than £130 million, you must agree a bespoke scheme.
If you use a standard retail scheme, you will work out the VAT on your sales by using one of the following methods:
Read more about VAT retail schemes
There are different rates of VAT that apply to different types of goods and services, some goods and services that are exempt from VAT.
There are three VAT rates:
- standard rate - 20 per cent
- reduced rate - 5 per cent
- zero rate - 0 per cent
VAT registration threshold
If you're in business, you must register for VAT if your VAT taxable turnover for the previous 12 months is more than £82,000. This figure is known as the VAT registration threshold. The threshold changes - usually once a year announced in the Budget - so you should regularly check your turnover against the current threshold.
You must also register for VAT if either of the following applies:
- you think your VAT taxable turnover may go over the threshold in the next 30 days alone
- you take over a VAT-registered business as a going concern
Deregistration threshold
The deregistration threshold is £80,000. If your VAT taxable turnover for the year is less than or equal to £80,000, or if you expect it to fall to £80,000 or less in the next 12 months, you can either:
- stay registered for VAT
- ask for your VAT registration to be cancelled
If you want to cancel your VAT registration you must write to HM Revenue & Customs (HMRC) to explain why your turnover has fallen. For example, you might have reduced your opening hours or lost contracts. You'll also have to give an estimate of your turnover for the next year.
Remember that your VAT taxable turnover includes only the goods and services you sell that you have to charge VAT on, even those that are zero-rated. It doesn't include sales that are exempt or outside the scope of VAT.
Thresholds for VAT accounting schemes
In contrast to standard VAT accounting, there are several alternative ways you can account for VAT that could save you time.
Some of these VAT accounting schemes have been designed for specific trade sectors. Others have been designed to deal with more generic business issues.
Flat-Rate Scheme
If you use standard VAT accounting, you have to record the VAT on every sale and purchase you make. You could simplify your VAT accounting by using the Flat Rate Scheme if both of the following are true:
- your estimated VAT taxable turnover - excluding VAT - in the next year will be no more than £150,000
- your estimated total business income - including VAT - in the next year will be no more than £230,000
Once on the scheme you may continue to use it to account for VAT until your total business income exceeds £230,000.
Read more about VAT Flat Rate Schemes
Cash Accounting Scheme
If you use standard VAT accounting, you have to pay HMRC the VAT you charged on your sales whether or not your customer has paid you. If you use cash accounting, you only pay VAT when your customer pays you. However, you can only re-claim VAT once you've paid your suppliers.
You can use cash accounting if you estimate that your turnover during the next tax year will be no more than £1.35 million.
Once you're using cash accounting, you can keep using it until your turnover exceeds £1.6 million.
Read more about cash accounting for VAT
Annual Accounting Scheme
If you use standard VAT accounting, you'll have to complete a VAT Return and pay any VAT due, or get any refunds, quarterly. You can reduce your paperwork and make it easier to manage your cash flow by using the Annual Accounting Scheme.
If you use the scheme then you:
- make nine monthly, or three quarterly, interim payments during the year
- only need to complete one return at the end of the year
- either make a balancing payment or receive a balancing refund at the end of the year
Once you're using annual accounting, you can keep using it until your turnover is more (or is likely to be) than £1.6 million.
Read more about the Annual Accounting Scheme for VAT
Retail schemes
If you're a retailer, and you can't account for VAT in the normal way, you can simplify your VAT accounting by using a retail scheme. A retail scheme can be standard or bespoke.
You can use one of the published schemes if your annual retail turnover - excluding VAT - is under £100 million. There are lower limits for some standard schemes. If your turnover is higher than £130 million, you must agree a bespoke scheme.
If you use a standard retail scheme, you will work out the VAT on your sales by using one of the following methods:
- point of sale
- direct calculation
- apportionment
Read more about VAT retail schemes
