The thresholds for VAT registration and deregistration have remained static for the last 7 years, however an increase in the thresholds was announced in the Spring Budget.
The new registration threshold is now £90,000, increased from £85,000. The deregistration threshold has also increased to £88,000 (from £83,000).
VAT registration becomes compulsory if by the end of any month, your business’s VAT taxable turnover for the previous 12 months goes above the threshold. This needs to be looked at on a rolling monthly basis, and not just at your accounting year end.
It is possible to apply for a registration ‘exception’ if you believe that you are only temporarily going above the threshold, for instance, because of winning a large one-off project. Provided you can show evidence as to why your turnover will be below the deregistration threshold in the next 12 months then HM Revenue and Customs are willing to consider making an exception.
In view of the rate of inflation since the thresholds were last revised, the latest increase seems to be a token gesture. However, it may help you to stay out of VAT and the administrative work that it brings with it.
For the first time, government departments have set individual targets for how much they will spend with small and medium-sized businesses (SME). In total, the government plans to spend £7.4 billion a year with SMEs by 2028.
For shareholders of owner-managed companies, dividends are still one of the most tax-efficient ways to take money out of the company. But with these increases coming in, it will be worth taking a fresh look at your extraction strategy.
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