Raising the VAT registration threshold to £90,000 offers significant relief to small businesses by reducing the number automatically required to register for VAT.
According to the Government, this adjustment will exempt over 28,000 businesses from VAT registration in the 2024-25 fiscal year.
For businesses with annual turnovers below the new threshold, this change brings several advantages: it minimizes administrative tasks, streamlines financial processes, and cuts down on the costs associated with VAT compliance.
This means that small businesses can focus more on growth and less on complex tax obligations.
Moreover, businesses that previously operated under the £85,000 threshold now have additional room to increase their earnings without triggering VAT registration.
This extra leeway supports gradual growth, allowing businesses to expand their operations slightly more before needing to deal with VAT-related responsibilities.
What if my business is required to charge VAT?
For businesses required to charge VAT, it is imperative to include VAT details on every invoice issued to customers. This practice ensures transparency and compliance, informing customers of the tax included in their purchases.
Most business accounting software suites ensure that charging VAT on your sales – and indeed, claiming any VAT back for your business – is a seamless process.
Platforms such as Xero and Quickbooks have easy integrations with HMRC, through Making Tax Digital, taking away much of the stress that business owners used to have in their invoicing, accounting and tax payments, through effective automation.
What if my business is not eligible for VAT registration anymore?
If your business is no longer eligible for VAT registration, you have two options:
Deregister from VAT
The threshold for VAT deregistration has also increased, from £83,000 to £88,000. If your business’s turnover drops below £88,000, you are eligible to deregister from VAT.
To do this, you must inform HMRC and request the cancellation of your VAT registration within 30 days of becoming ineligible. This step can help reduce administrative burdens and simplify your financial management.
Voluntarily Register for VAT
Despite the new thresholds, there may be strategic advantages to voluntarily remaining VAT registered even if your turnover is below £90,000.
Voluntary registration allows you to reclaim VAT on purchases from other VAT-registered businesses, which can offset your costs.
Additionally, being VAT registered can enhance your business’s credibility, making it appear more established and professional to customers and suppliers.
Choosing the best option depends on your specific business needs and financial strategies. Consider the potential benefits of VAT registration against the administrative obligations to make an informed decision.
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