VAT Threshold 2023

Are you not sure if you should be paying VAT? Or when you’re supposed to register for VAT? This is a common question for most companies and depends on a particular threshold determined by the tax authority.

The VAT threshold is defined as the point at which your business is earning enough money that it is required to register for VAT. It is a legal requirement and you’ll need to register your business if you go over this threshold at any point during the year.

Top tip: The VAT threshold is determined by how much you have earned within a 12-month period, but this doesn’t have to be at the same time as the tax year, nor does it have to be over a 12 month-period. Once you’re over the threshold, regardless of how many months into the year, you must register for VAT.

What is the VAT Threshold in the UK?

Currently in the UK the VAT threshold is reached when your business has earned more than £85,000 over the past 12 months or if you expect to earn more than £85,000 in the next 30 days.

Changes in VAT Threshold for 2023

The VAT threshold has changed several times over the past few years. Here’s a look back at what the VAT threshold has been and what it is today:

Previous VAT Threshold Limits

As outlined above, the VAT threshold limit has changed over the years. Here are some of the past limits:

• 2014 – 2015: for a year, the limit sat at £81,000
• 2015 – 2016: this threshold also stayed in place for just a year at £82,000
• 2016 – 2018: for two years, the threshold rose to £83,000
• 2019 – 2026: the current VAT threshold of £85,000 will remain the same until 2024

A low VAT threshold is often challenging for small businesses as they reach it quickly and are forced to register for VAT before they have suitable systems in place. When the VAT threshold is carefully balanced, it allows companies to grow while giving them the space they need to put the right systems in place.

Did you know? That the threshold to de-register for VAT is £83,000, and both the de-register and registration VAT threshold amounts are frozen until 31 March 2024.

Updated VAT threshold for 2023

The VAT threshold is not expected to change until 2024. However, the amount varies depending on sector and specific HMRC requirements. You need to register for VAT if you or your business are:

• Earning a total taxable turnover of more than £85,000
• Bringing goods into Northern Ireland from the EU at a VAT threshold of more than £85,000
• Selling goods from Northern Ireland to consumers in the EU means your total sales across the EU are more than £8,818

How Does This Impact Businesses?

Whether you are a large enterprise or small to medium business (SME) Businesses of all sizes are expected to register for VAT, get a VAT number, and submit a VAT return on a regular basis. You will also have to charge VAT on your goods and services, pay VAT on goods and services you get for your business, and keep meticulous VAT records. 

This requires significant changes for enterprises and SMEs and their internal processes for tracking, calculating, and reporting VAT:

Impact on Enterprises

Organisations must stay on top of tax laws for every country they do business with. 

Enterprise-sized organisations specifically must manage a high volume of business expenses generated by their employees where VAT can be reclaimed, such as Travel and Entertainment (T&E) expenses spent by employees while on a business trip. 

Typically, employees will key in their expenses into an expense management software (EMS) program and upload any receipt or invoices into the system. These expense reports and physical invoices and receipts must be checked and analysed one by one. Finance or tax teams must manually check between expense reports and invoices to verify which expenses qualify for VAT reimbursement. 

To do this, they must also check each VAT expense according to the tax regulations for the appropriate country. VAT rates and tax rules are complex and vary by country and the type of expense (e.g. accommodation, food and beverage, transportation). These rules also change frequently. 

It is quite common for enterprise companies to manage thousands of receipts and invoices from their employees. Managing, analysing, and calculating all of these expenses is manually time consuming and costly. The added burden of keeping up to date on changing tax regulations also complicates the process.

Impact on Small and Medium-Sized Enterprises (SMEs)

As a small to medium enterprise (SME), managing and submitting VAT returns regularly requires a significant level of admin and paperwork. This can be overwhelming, which means you need to be prepared. Registering for VAT – something you can do even if you are below the VAT threshold – has the benefit of allowing you to be reimbursed for all the VAT you spend on your business. It also adds gravitas to your business, as you are clearly a stable and thriving company with a solid client base.

Registering for VAT isn’t all admin and paperwork. It is also a sense of credibility and business growth.

Strategies for SMEs to Adapt to the Changes

Registering for VAT does put pressure on you to maintain your paperwork properly. While this may feel boring and takes time, you’ll be grateful if you ever discover a problem because finding information will be easy, and resolving it will be quick. Plus, you can take advantage of intelligent technologies and solutions designed to make your life easier when managing VAT.

Here are some extra top tips to managing your VAT:

• Spend time inside your VAT online portal so you know exactly what type of VAT reporting structure you have – monthly, quarterly, annually, specialised – and what deadlines you need to meet.
• Work with an accountant or use a professional accounting software solution to manage your paperwork, filing, and VAT returns so the process is easy, accurate and up-to-date.

Considerations for Cross-Border Transactions

If you need to register for VAT in other countries, such as the EU, you will need to follow the clear VAT registration process for each country, providing the relevant paperwork and information. Like HMRC, most VAT authorities are online, which makes the process a lot easier to manage. Because trade with other countries is considered an export of goods and services, you will need to assess whether or not your goods are VAT exempt or need to include VAT.

You’ll need a VAT number for every country you operate in and to ensure you are compliant across each country, meeting their VAT return deadlines and expectations. This level of compliance will likely take a lot of your time, so consider using dedicated technology to help you better manage the process.

You can log into your HMRC VAT Online Account to find out when you need to submit your VAT returns and ensure that your payments are up to date.

Late VAT returns and payments are now subject to a penalty points system designed to make it easier for companies to manage their VAT returns. You need to keep accurate records to avoid penalties for submitting incorrect information on your VAT return.  

VAT Threshold Variations in Different Countries

Every country has its own VAT threshold. Below you can see the latest European VAT registration thresholds updated for 2023:

Practical Guidance for Businesses

Steps to determine if a business should register for VAT

When your company has a total VAT taxable turnover of more than £85,000 over the period of a year, then you are eligible to register for VAT. The same applies if you anticipate that your turnover will exceed £85,000 in the next 30 days.

However, you can still register for VAT if you earn below the threshold. The UK tax authority allows companies below the £85,000 annual turnover to register and experience the same benefits as those on or above the threshold. This is known as voluntary registration.

It is also important to note that the HMRC expects a company to register for VAT if it is not based in the UK and if your business provides any goods or services to the UK or plans to in the next 30 days. You will also need to register if you recently purchased or took over a company that has already been VAT registered.

Importance of accurate record-keeping and monitoring sales

You have to keep very accurate and careful records when you are registered for VAT. These are all the items and services you purchased and sold, including all those items that are either zero-rated for VAT, subject to reduced VAT, or exempt from VAT. You will need to keep all your invoices, all your self-billing agreements, and the details of all your self-billing suppliers. 

Note: You need to keep all the invoices you have received both in digital and paper formats.

According to HMRC, you also need to ensure your invoices include VAT and that you keep a copy of every invoice you have issued, even ones that were created in error. You also need to keep all the invoices of purchases you’ve made during your VAT period.

Have all your paperwork and numbers readily available. This includes your total sales for your VAT return period, the output VAT you have collected on your sales, your total purchases, and the amount of VAT you can claim back (input VAT).

Ensure you have the right software for the process. You can find a complete list of compatible software here. If you are allowed to submit your VAT returns manually, you will receive a paper form from HMRC that you then need to complete in full before returning it to them before the deadline.

Tips for staying compliant with VAT regulations and avoiding penalties

If you have registered for VAT, then you need to submit a VAT return. If you are not sure when you’re supposed to submit your VAT return, visit your online VAT account. It will tell you exactly what deadlines you have to work towards. VAT due date deadlines are non-negotiable. If you don’t submit on time, you could face penalties and fines that can cost your company money and potentially your reputation.

The system works on points – every time you submit to HMRC late, you will get a penalty point. When you reach a certain number of penalty points, you then get a £200 penalty fee. This fee will be then charged on every additional late submission you make for as long as you stay at this threshold. The same applies to incorrect VAT returns.

Did you know? We have a comprehensive walkthrough that takes you through everything you need to know about submitting a VAT return.

Blue dot’s Insights and Recommendations

You don’t have to navigate the twists and turns of VAT registration, threshold management, returns, and paperwork alone – Blue dot has your back (and your VAT). We have an in-depth understanding of VAT and how to help you better manage it so your business can thrive. Our blog includes in-depth insights into VAT and the different elements that comprise VAT management, such as Fringe Benefits and reclaiming VAT for business trip expenses.

You can also access our Unleash the Power of Your Tax-Tech talk that unpacks how successful financial leaders are leveraging tax technology to keep up with VAT and other tax permutations. 

Also, having a digitalized and intelligent solution that can manage your VAT calculations and submissions at scale will help you efficiently and accurately verify reclaimable VAT and ensure compliance with tax regulations across the entities and countries they operate. 

VATBox by Blue dot is an enterprise VAT management solution that makes your life easy – quickly. You can leverage our automated, artificial intelligence and machine learning powered application to ensure your VAT is compliant and your business is ahead of the game.