What to do if you’re close to hitting the VAT threshold

vat threshold

If your creative business is making a good turnover, at some point you’ll need to think about registering for VAT.

All UK businesses with more than £85,000 taxable turnover in any 12-month period must register for VAT (even if those 12 months don’t align with the tax year).

If you exceed this limit, HMRC will give you 30 days to register within the end of the month when you went over the threshold…but we don’t recommend letting it get that late! You or your accountant can register your business. It’s fairly easy to do it online, but you’ll need to factor in time for HMRC to send you a VAT registration number. By preparing everything in advance of reaching the threshold, you’ll cut out last-minute panic and avoid HMRC penalties.

What does it mean to be VAT-registered?

After you register, your business will need to:

  • Charge VAT on any goods and services you sell.
  • Pay VAT on any goods and services you buy for your business.
  • Submit VAT returns to HMRC.
  • Keep VAT records and a VAT account.

You’ll also be able to reclaim the VAT on items you purchase after your effective date of registration.

First things first: understand your numbers.

Whether it started out as a side hustle or you set out with the aim of building a business from day one, you need to know exactly how much turnover you’re making. Once you’ve got a clear idea of your income, you’ll know when to start preparing for VAT registration and can avoid unexpected penalties.

It all comes down to putting the right bookkeeping system in place. With clear, organised books, you can see exactly how much money you’re making in real-time. That’s not all: solid bookkeeping provides valuable data which informs important decisions and can forecast budgets. Great visibility over your numbers benefits all areas of your business.

Register for VAT before you hit the threshold.

If you know you’re on course to hit the £85,000 threshold, it’s time to think about registering. A good rule of thumb is to start the process once you’re making between £70,000-£75,000 in a 12-month period. You’ll avoid risking late VAT registration and will be able to reclaim VAT sooner.

Set your effective registration date as one month away.

If you set your effective registration date with a good lead time from the date you apply, it can help you receive your VAT number before the date you need to be registered by. For example, if you apply for VAT registration on 1st March, put an effective registration date of 1st April. It will also mean you don’t have to go and reissue invoices, cutting out a lot of hassle!

Ask your accountant to register on your behalf.

To make the process as smooth as possible, get your accountant to complete your VAT registration for you. This can help prevent delays in receiving your VAT number and makes sure you’ve got all bases covered for peace of mind.

Navigate the process with total confidence.

As a creative business owner, you’re spinning more plates than you can manage. The last thing you want to think about is VAT registration. But you don’t have to.

Whether it’s handling your VAT registration or providing top-notch bookkeeping, our job at Alchemy is to give you more time to focus on the things you do best (and enjoy). Fill in our form and let’s chat about how we can make it happen.