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 for 2024 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, 2024 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.
Most goods and services are charged at the standard rate of VAT in the UK which is 20 per cent. VAT in the UK has remained at 20 per cent since it rose from 17.5 per cent in 2011.
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Some goods and services are charged at a reduced rate, which as of March 2024 sits at 5%, like children’s car seats and home energy, or zero rates, like children’s clothes and food.
Other services are exempt from VAT altogether, such as postage stamps and property transactions.
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.
VAT registration threshold 2023
The VAT registration threshold in 2023 is £85,000, and it has held at this level since 2017 and is fixed until at least March 2024. 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. Following Brexit, the UK no longer has to comply with the EU’s minimum VAT rate of 15%, meaning all goods moved between the EU and UK are now counted as imports and exports and subject to import VAT. 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.
Outlook for 2025
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. So far, we know that the current VAT threshold has been frozen until at least March 2026.
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.
Making Tax Digital
Since 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. In 2019, MTD was introduced only for businesses who exceeded the £85,000 threshold, but since April 2022, it has been required that all VAT-registered businesses comply with MTD for VAT, regardless of turnover.
Under MTD, all VAT returns must now be submitted digitally, in order to provide the timeliest information and simplify the process for all involved.
Some of the records you’ll need to keep digitally include:
- Business name, address and VAT registration number
- Any VAT accounting schemes you use
- The VAT on goods and services you supply and receive
- Any adjustments you make to a tax return
- The rate of VAT charged on any goods or services you supply
- Reverse charge transactions
- Total daily gross takings
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.
The Importance of Registering for VAT
There are a number of key advantages that come hand in hand with ensuring your eCommerce businesses is properly registered for VAT. It builds on your legitimacy, credibility and reputation as a business , giving you a competitive advantage over non-registered businesses.
Its vital that in registering for VAT, you maintain accurate records of sales, purchases and VAT payments. While this may seem like a daunting task, it in fact helps ensure your businesses financial health is kept in peak condition, helping you to avoid any penalties or unnecessary audits.
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, contact your e-commerce accountant.
Related articles
https://unicornaccounting.co.uk/blog/the-most-efficient-way-to-pay-yourself-for-e-commerce/
https://unicornaccounting.co.uk/blog/tax-bands-and-thresholds/
https://unicornaccounting.co.uk/blog/missed-the-tax-return-deadline-heres-what-you-need-to-do/
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