Approaching the VAT registration threshold

When approaching the VAT registration threshold there are important matters to consider. The VAT registration threshold is the point at which businesses must register for VAT with HMRC.

A business must register for VAT if:

• their total VAT taxable turnover for the previous 12 months is more than £90,000 – known as the ‘VAT threshold’;
• they expect their turnover to go over the £90,000 VAT threshold in the next 30 days; or
• they are an overseas business not based in the UK and supply goods or services to the UK (or expect to in the next 30 days) – regardless of VAT taxable turnover.

With traditional VAT registration, businesses are required to collect VAT on their sales and pay it to HMRC even if customers have not paid their invoices. This can create cash flow issues, as the business must remit the VAT before receiving full payment from customers. This means that small businesses may struggle with cash flow due to VAT liabilities, especially if they do not have enough working capital to cover tax obligations while waiting for customer payments.

We would be happy to help businesses approaching the VAT registration threshold understand their options. There are a number of VAT registration options available. Making the wrong choice could have significant cash flow consequences. It may be possible to alleviate these difficulties by adopting the VAT Cash Accounting Scheme or VAT Flat Rate Scheme but take advice before making a decision as registration criteria apply; not all businesses would qualify.