People living in any country are required to pay taxes through direct and indirect means. While direct tax refers to income tax, indirect tax can be in the form of VAT. When it comes to the VAT, businesses are the ones that need to focus more on these. It is important to know about the VAT threshold to see if you meet the cut or not. If you wish to know more about the VAT threshold UK, then stay tuned. Here, you will find all of the relevant details there are to it.
What Is The VAT Threshold
First thing’s first, what is the VAT threshold? Essentially, VAT is the tax that a business adds to its services or goods, and it is paid by the end consumer. This end consumer of the good or service can be either a customer or a business as it is levied on the item sold or the commission generated from a sale.
So, when it comes to the VAT threshold, it is the requirement for a business’s revenue to qualify for VAT. Not every business is required to file for VAT. There is a certain threshold for VAT in place that needs to be met for your business to administer it.
While many people have a difficult time understanding the concept of VAT, it is rather simple. It doesn’t require too many complications for you to understand the entire concept. Instead, all you need to do is ensure that you have a basic idea about it to know how it works.
- Different Rates Of VAT
When it comes to the VAT, you should know there are about three different rates used for it. One of the VAT rates is applied to the good or service you offer. The more popular and commonly applied rate is the Standard Rate VAT, which is about 20%. The next one is the reduced rate VAT, which is 5%. Finally, there is the zero rate VAT, which the name suggests is 0%.
- Exempt Items
VAT is not applied to every possible item sold. At times, you will find that some items do not have any VAT attached to them, not even the zero rate VAT. This has more to do with the service or good being offered. For instance, a doctor’s medical services are exempt from tax completely.
UK VAT Threshold
Now, let’s talk about the VAT threshold 2020. When it comes to any kind of tax, it is important to note that there are specific thresholds in place for them. The same goes for the VAT. So, what is VAT threshold? In the UK, there are specific limits to be able to register for VAT.
For instance, currently, the UK VAT threshold is about £85,000. This hasn’t always been the case. This threshold exists since 2017 till date. Before this, the VAT threshold varied over the years. Let’s look at some of the recent thresholds.
· For the year 2014 to 2015, the VAT threshold was £81,000
· For the year 2015 to 2016, the VAT threshold was £82,000
· For the year 2016 to 2017, the VAT threshold was £83,000
· From 2017 onwards, the VAT threshold has been £85,000
As you can see, there is a pattern when it comes to the VAT threshold. This has to do with the fact that it is revised yearly. Most of the time, it is increased in the following year. However, you will see that the VAT threshold UK 2020 remains the same as the one in 2017. This has to do with the fact that this figure was extended was the following years. There is a possibility for change in the next few years. However, it will prevail till at least the first half of 2022.
The VAT threshold denotes that you’re eligible to register for VAT. There is a proper procedure that you’re required to follow for it. So, you want to make sure that you get yourself acquainted with it. All you have to do is make sure that you keep a check on your earnings regularly to see whether or not you meet the requirements for VAT.
VAT Registration Thresholds For Imports And Exports
Typically, you will find that the VAT registration threshold is about £85,000. There are two things that you will need to keep in mind when it comes to the registration; do you expect your VAT taxable turnover to go over £85,000 in the next 30 days or has your business accumulated over £85,000 as VAT taxable turnover in the last twelve months? In either case, you will be required to register for VAT.
Different rules prevail when it comes to VAT thresholds for imports and exports. The typical £85,000 VAT threshold is mainly for businesses that operate within the UK, selling to locals. So, you will not find any confusion here.
For instance, if your business is into distance selling, then you will have a VAT threshold of about £70,000. This occurs when a country of the European Union (EU) sells to another country of the EU.
On the other hand, if a foreign company sells goods inside of the UK, then their VAT will be highly dependent on a number of things. The first thing to note is whether or not the business is in the EU. Next, there needs to be a confirmation about whether the business’s customers have registered for the VAT. And then, the last thing to weigh is whether your business sells excise items. Each of these elements is to be observed to figure out the VAT threshold for foreign business.
Bottom Line
The VAT threshold varies under different circumstances. You must always make sure that you keep up with the changes that are presented in the laws yearly. More than that, you will also need to know that not every business requires registrations for VAT. For instance, if your taxable turnover is temporarily crossing the VAT threshold, then you will be given an exemption. However, you will need to provide adequate details about this for the authorities to accept this exemption.
