As a new year approaches, many businesses are considering the way in which things may change over the next 12 months.
Contraction is as natural a part of business as growth and both come with notable changes to administrative obligations that will need to be managed as your business changes size.
If your business is set to contract, you might soon slip below the VAT threshold.
While deregistering might be tempting, you should understand whether it is truly best for your business?
The more well-known VAT threshold is the £90,000 threshold where any taxable turnover above that means that businesses must register for VAT.
What some business owners may not know is that they can deregister for VAT if taxable turnover drops below £88,000.
The gap between the thresholds stops businesses jumping in and out of VAT as taxable turnover organically fluctuates during normal business operations.
If your business is not VAT registered and you cross the £90,000 threshold unexpectedly, you will have 30 days from the end of the month in which you went over the threshold to register for VAT.
However, there is no deadline for deregistering for VAT, as it is an entirely optional process given that businesses below the £90,000 threshold can be registered for VAT.
To be able to know whether you should deregister for VAT, you will need to accurately gauge your forecast for the next 12 months.
You might be feeling a bit gloomy about your prospects in the wake of the Autumn Budget, but try not to let this influence your decisions too much.
You should seek professional advice before determining whether you are likely to stay below the threshold for VAT over the next year.
If you prematurely deregister and find that business grows again, you will need to register for VAT once more.
For businesses that are going to operate below the threshold, deregistering for VAT can be a helpful way of shifting some of the administrative burdens that come with larger operations.
However, we would caution against getting too comfortable working below the VAT threshold.
The Office for Budget Responsibility (OBR) estimated £350 million of revenue was lost in 2023 from businesses suppressing trade to avoid the VAT threshold.
This is not a good idea as you should not limit your business’s potential, especially given the economic challenges that many businesses face.
We understand that VAT can bring with it challenges, but we are on hand to help you manage your obligations so that you do not have to sacrifice success.
If your business is going to be crossing the VAT threshold soon, then we can give you the advice needed to manage it effectively.
Similarly, if you can deregister for VAT, we will help you determine whether this is the best course of action for your business.
Applying for VAT can be done voluntarily, so it is sometimes worth registering if your business is operating around the threshold to avoid any compliance risks.
For professional support with VAT compliance, be sure to speak to our team today!
