Background
One of the main announcements in last month’s budget was the increase in the VAT registration threshold from £85,000 to £90,000 and this change has now come into effect from 1 April 2024. This change represents the first increase to the threshold since it was frozen with effect from 1 April 2017.
In addition, from 1 April 2024, the threshold at which a business can deregister for VAT has increased from £83,000 to £88,000.
Detail
If a business makes taxable supplies for VAT purposes, then from the 1 April 2024 the VAT registration limit has increased from £85,000 to £90,000. This test is applied on a rolling 12 month basis, so each month the turnover for the previous 12 months must be considered to see if the limit has been breached. A business must register within 30 days of the end of the month that they exceeded the threshold. The effective date of registration will then be the first day of the second month after going over the threshold.
There is also a second test for VAT registration purposes. If a business considers that the limit may be exceeded in the next 30 days then it must register for VAT. The business would need to register by the end of that 30-day period. Under this second test the effective date of registration is the date the business realised it would exceed the limit, not the date turnover went over the threshold.
Businesses below the registration threshold can still choose to register for VAT voluntarily. This can be beneficial where a business expects to incur higher levels of VAT on its purchases than they would be required to charge on their sales, thus providing the business with a VAT refund.
Companies with a turnover below £150,000 may wish to consider the Flat Rate Scheme for VAT. In the Flat Rate Scheme, in very broad terms, 20% VAT is added to sales invoices but a lower percentage is paid over to HMRC and this rate depends on the business activity. For many small businesses where customers can re-claim the VAT charged, this scheme is beneficial.
The level at which a business can apply to HM Revenue & Customs (‘HMRC’) to de-register for VAT has increased with effect from 1 April 2024 from £83,000 to £88,000.
HM Revenue & Customs estimate that these changes will benefit over 28,000 businesses which will no longer have to be VAT-registered.
If you would like more information on any of the points raised above, or on VAT registration in general, please speak to our Tax Director, Jenny Marks.
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