When calculating whether you have reached the VAT registration threshold (£85,000 per annum for 2017/18 - you can see the up to date rates here), you must determine the VATable turnover of your business.
However it is only income that is treated as VATable turnover that actually counts towards the VAT registration threshold.
So what is VATable turnover?
VATable turnover is calculated by looking at your total supplies which would be standard, reduced or zero-rated supplies if you were VAT registered.
Some examples of reduced or zero rated supplies which do count towards your VATable turnover are as follows:
- Payable at the reduced rate of 5% - gas and electric, children's car seats, stop smoking products (eg patches), mobility aids for the elderly and energy saving materials
- Zero-rated - children's clothing, books, magazines and motorcycle helmets
What isn't VATable turnover?
VATable turnover does not include any exempt or outside the scope, supplies made by your business.
Some examples of sources of income you can ignore when calculating your VATable turnover are as follows:
- VAT exempt income - for example income from financial services, rental income, income from betting, gaming and lotteries
- Income outside the scope of VAT - for example the supply of goods which are outside the scope of VAT because of the place of supply rules, the supply of services to a business customer in the EU, or any customers outside the EU
- Disbursements incurred on behalf of a client
- One-off sales of capital assets
- Grants or any income from employment
When should I register for VAT?
You'll have to monitor your turnover on a rolling 12 month basis , so at the end of each month, you should check your turnover for the past year to see if you've exceeded the limit. You then have 30 days to inform HMRC.
And remember, once you're VAT registered you need to file and pay on time as there are some nasty penalties for late filing and paying (see more about this here).
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