A guide to the VAT registration threshold 2021 (UPDATED for 2021)

Value Added Tax (VAT) registration shouldn’t leave you stressed, nor should it be put off. In this guide, we’ll give you a brief rundown of the VAT registration threshold 2021 along with information on when and how to register your e-commerce business.

Whether or not your e-commerce business has passed the VAT registration threshold, 2021 could still be the right year for you to put in place the processes that will help to support your business as it grows. You may be close to the threshold, or maybe you have surpassed it but are yet to register as you don’t know the ins and outs. Forewarned is forearmed, so here’s what you need to know, whatever stage your business is at.

What is VAT? 

VAT, or value-added tax, is added to the costs of products in the UK, the EU, and many other global markets.

Your e-commerce business pays VAT each and every time you make a purchase, such as stock, website hosting or advertising. If you are VAT-registered, you can claim back the VAT on your purchase, but you must pass the VAT onto your customers.

As an e-commerce business, this can decrease your profit margins as your customers are unlikely to be VAT registered themselves (unless you are selling B2B), but there are also some tangible upsides.

Find out more details in our VAT hub.

VAT registration threshold 2021

The VAT registration threshold 2021/22 is £85,000, and it has held at this level since 2017. This means if your business’ taxable turnover exceeds this limit, or is going to in the next 30 days, you must register for VAT. The date of registration should be the date you realise your business will exceed the threshold, not when it hits that point.  

Additionally, if your business had a taxable turnover of £85,000 or more in the last 12 months and you haven’t registered yet, you must do so. Again, there is a 30-day cap. You must register within 30 days of the end of the month your e-commerce business passed the threshold or risk penalties.

Specific Cases

There are some specific cases in which you will need to register despite not hitting the threshold, but an e-commerce accountant will be able to advise you if this is the case.

It is important to keep an eye on the new VAT registration threshold each year, which is posted April 1st. If you suspect you have passed the threshold in a previous tax year, you must still report it and register. HMRC’s list of historic VAT thresholds will help you to ascertain this.

Brexit-related Thresholds

There are now different thresholds if you are trading into or out of the EU and/or Northern Ireland. If you are distance selling into Northern Ireland, the threshold is £70,000, unless you are bringing them in from the EU, at which point the £85,000 threshold remains. Please seek guidance from an e-commerce accountant if you are trading into or out of the EU to ensure you are correctly VAT registered.

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Outlook for 2022/23

The VAT threshold has remained fixed since 2017. With the challenges of COVID-19 and Brexit, there is unlikely to be a different standard VAT registration threshold but specific circumstances may expand. We will update this article once the new threshold is announced to reflect any changes.

How to Register

You can register your e-commerce business online using your Government Gateway credentials, or you can instruct an accountant to do so on your behalf.

As you go through the registration process, you will need to decide which VAT scheme is right for your business. They each have their advantages and disadvantages, and we’ve covered them from an e-commerce standpoint here.

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Making Tax Digital

From 1st April 2019, the Making Tax Digital initiative has been in force for VAT. Further amendments in future years will eventually bring all taxes under this initiative, but currently, it is only relevant for VAT.

Under MTD, all VAT returns must now be submitted digitally, in order to provide the timeliest information and simplify the process for all involved.

In order to comply, you will need to use MTD-approved software, such as Xero, to submit your VAT returns. Spreadsheets are no longer deemed to be sufficient unless you use MTD-approved bridging software. We recommend Xero for this purpose and more, as it covers all your e-commerce needs. Further guidance can be viewed on the HMRC website or through our guide.

Next Steps

If the thought of crossing the VAT threshold leaves you unsure about matters for your e-commerce business, get in touch today. We can help you plan for VAT registration, choose the right scheme, and set up Xero for MTD. VAT isn’t intimidating, but it does need to be dealt with in a swift and accurate manner. Don’t delay!

The best time to start is now.

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