Businesses that sell products chargeable to VAT need to register for VAT once they exceed a total turnover on those products of £85,000. Businesses must check their vatable turnover on a rolling basis, so every month for the previous 12 months and once this is breached, register for VAT.
There are exemptions where a breach is temporary, but otherwise once a business is VAT registered, all VAT collected on sales is to be included on a VAT return every 3 months as the amount of vat owed to the Treasury. This amount is offset by the amount of VAT the business has paid on purchases and can be backdated - 4 years for goods and 6 months for services.
The Chancellor is expected to reveal a review into this system of registration today in the Spring Statement. The VAT threshold at £85,000, once breached, means that the business in question would need to, at present, hand over 20 percent as vat owed. This is £17,000 and research by the government has revealed that businesses are artificially keeping their turnover below this level rather than expanding. This is thought to be to avoid having to register for, and pay, VAT.
Introducing a measure to offset this effect would bring in steps to the threshold so once a business exceed £85,000 in turnover they can keep some VAT collected and only pay over the full amounts until they exceed a £115,000 threshold.
If introduced today these measures would be on the opposite end of what was expected prior to the Autumn Budget last year. Rumours were that the VAT threshold would be brought down to EU levels of around £25,000. That news was met very negatively and there were indeed no changes made in the Budget.
We'll follow along with the Spring Statement today and update any changes on our tools and calculators as the day progresses. Follow us on our twitter @uktaxcalculator for updates.