VAT registration for a business becomes mandatory if its vatable turnover crosses the VAT registration threshold which is, at the moment, £85,000. Most of the businesses believe that the period which they should consider to calculate this turnover is their financial year. Meaning if the financial period of their business is July to June, the turnover in this period should not exceed the threshold. However, there is a common misconception and the correct method of calculating the turnover is on rolling 12-month period basis.So it is advised to carefully keep checking the taxable turnover figures each month on a rolling 12-month basis because HMRC can check any 12 months period instead of just checking your normal tax year. It is pertinent to note that the VAT taxable turnover is the total value of everything you sell that is not exempt from VAT.
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Rolling 12-month turnover is checked every month by adding taxable turnover of recently ended month into last 12 month’s turnover and then deducting taxable turnover of first month of last 12 month’s turnover. Every passing month you add one month’s taxable turnover (recently ended) and deduct one month’s taxable turnover (first month of previous 12-month period) in order to get up to date 12 month’s taxable turnover figure.For example, in the table-1, taxable turnover for the first 12 month was £84,185 which was just below the VAT threshold but in 13th month , we added June 2019’s turnover and deducted June 2018’s turnover to workout 12-month rolling figure which turns out to be £85,185 and is exceeding the VAT threshold. Hence VAT registration is required within 30 days.
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|Month Number||Turnover||Taxable turnover|| Rolling Turnover |
|12||May-19|| 5,005.00|| 84,185.00|
|13||Jun-19|| 8,450.00|| 85,185.00|
You need to register for VAT within 30 days of reaching the threshold. If you fail to register in time, you may be liable to penalties.There are some situations in which it may be beneficial to register voluntarily before you reach the threshold.For a detailed discussion please contact Asif Mahmood on firstname.lastname@example.org
or call us on 0113 887 0218.