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Find out the crucial steps your business needs to take when exceeding the UK VAT threshold. Ensure compliance and manage your VAT obligations effectively.

What to Do When Your Business Exceeds the VAT Threshold

Understanding VAT

Value Added Tax (VAT) is a tax on the value added to goods and services. In the UK, businesses must register for VAT if their taxable turnover exceeds a certain threshold, which is subject to change annually. As of the current fiscal year, the threshold is set at £85,000. Once this threshold is exceeded, it is essential to follow specific steps to ensure compliance with HMRC regulations.

Steps to Take When Exceeding the Threshold

  1. Calculate Your Taxable Turnover
  2. Register for VAT
  3. Understand Your VAT Responsibilities
  4. Implement VAT Accounting
  5. File VAT Returns

Calculate Your Taxable Turnover

The first step is to determine whether your business has indeed exceeded the VAT threshold. Calculate your taxable turnover, which includes the total value of everything you sell that isn’t exempt from VAT. This calculation should be done on a rolling 12-month basis, rather than a fixed calendar year.

Register for VAT

Once you've confirmed that your taxable turnover exceeds the threshold, you must register for VAT with HMRC. This can be done online through the HMRC website. You'll receive a VAT registration certificate, which confirms your VAT number, the date of registration, and when you need to submit your first VAT return and payment.

Understand Your VAT Responsibilities

After registration, you need to understand your responsibilities as a VAT-registered business. This includes charging VAT on your sales, paying VAT on your purchases, and keeping accurate records of your transactions. You'll also need to issue VAT invoices to your customers and include your VAT number on these invoices.

Implement VAT Accounting

Implementing a proper VAT accounting system is crucial. This involves setting up processes to record VAT on sales and purchases accurately. Many businesses use accounting software to help manage their VAT records. Ensure your system is compliant with HMRC's Making Tax Digital (MTD) initiative, which requires businesses to keep digital records and submit VAT returns using compatible software.

File VAT Returns

As a VAT-registered business, you must file VAT returns, usually every quarter. Your VAT return will detail the amount of VAT you've charged and the amount you've paid. If you've charged more VAT than you've paid, you’ll need to pay the difference to HMRC. If you've paid more than you've charged, you can reclaim the difference.

Common Challenges and How to Overcome Them

  • Cash Flow Issues
  • Keeping Accurate Records
  • Understanding VAT Rules

Cash Flow Issues

One common challenge businesses face is managing cash flow, especially if customers are slow to pay their invoices. To mitigate this, consider negotiating better payment terms with your suppliers or seeking short-term financing options.

Keeping Accurate Records

Accurate record-keeping is vital for VAT compliance. Invest in reliable accounting software and ensure your team is trained to use it correctly. Regularly audit your records to prevent discrepancies.

Understanding VAT Rules

VAT rules can be complex. If you're unsure about any aspect of VAT, consider seeking advice from a VAT specialist or accountant. This can help you avoid costly mistakes and ensure you're fully compliant with HMRC regulations.


Exceeding the VAT threshold is a significant milestone for any business. It indicates growth and success, but it also brings new responsibilities. By following the steps outlined above and addressing common challenges, you can ensure your business remains compliant and continues to thrive. At Pro Legal, we are dedicated to providing you with the information and resources you need to navigate the complexities of business law. Stay informed, stay compliant, and continue to grow your business with confidence.

An expert in lifestyle and health, Annabelle Turner offers multifaceted advice on achieving wellness in daily life.

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