For this year only my turnover may reach £85k - now what?

[jtufty]

Hi,

Im a self-employed web developer. Usually my turnover is ~£70k, however this year I might turnover more than the £85k VAT threshold. This is a one-off, and I dont envisage breaching the £85k mark again.

What would one usually do in this situation? Turn work away so that I dont breach the limit? Register for being VAT and then de-register?

Thanks

[Trevor S]

Provided that you don't anticipate exceeding the £85,000 in any 30-day consecutive period alone (known as the "forward look" test), the rules for an "exception from VAT registration" may be useful. HMRC's guidance is in their internal manual pages "VATREG19050" onwards: https://www.gov.uk/hmrc-internal-manuals/vat-registration-manual/vatreg19050 . Note that, although published online, this is written for HMRC officers' use - so where it uses the word "you", it is actually referring to the HMRC officer, rather than to you.

In summary - if at the time that you would become liable to register for VAT you can demonstrate that your turnover for the next 12 months will total less than £83,000 (the deregistration threshold), you can ask HMRC to grant an exception from VAT registration. It's intended to avoid the need for a registration and deregistration for "one-offs".

However, depending on who your customers are, VAT registration might be beneficial. If the majority of customers are businesses who are entitled to reclaim the VAT they incur on their expenditure, you could add VAT to your charges at no cost to them, whilst you'd benefit from the VAT recovery on your expenditure.

[jtufty]

Thanks @Trevor, this is useful.

Im halfway through my tax year and have a turnover of £45k, so Im not overly concerned at this point. Ill see where the land lies in 3 months.

My clients are mostly VAT registered, but I suppose Im fortunate that I dont have many expenses, so theres no benefit to me really regards claiming vat back on expenses. VAT on my expenses each year is probably about £2k, but I have a feeling my accountants fees cost nearly that for them to manage my VAT stuff. I may be wrong, Iv eheard that accountancy fees go up massively when you become vat registered becuase theres more admin they need to do?

"...demonstrate that your turnover for the next 12 months will total less than £83,000..." : Out of interest, how could I demonstrate this? In other words, how would I evidence it?

Many thanks

[Trevor S]

I'm a VAT consultant, rather than an accountant - so don't know what the impact on their fees would be!

In terms of evidence, is it a particular job that's likely to push you over? If so, could you demonstrate that it's a one-off job, rather than a continuing engagement. Might be useful to explain how you got that work - e.g. was it through a recommendation, rather than an attempt to market and grow your business?

[jtufty]

Indeed. It is because of one client. Once the project started it quickly span-out into being a much much bigger job! There is light at the end of the tunnel, and Im hoping it should end within 2 months. It is quite a clear case of 'a particular job that's likely to push you over'.

Thanks Trevor.

[jtufty]

Morning Trevor.

I had a somewhat sleepless night last night ruminating over this potential VAT issue. My fear being that - at some point over the past 12 months - I may have gone over the threshold. So Ive been up early this morning looking at my accounts. I think - if my calculations are correct - the closest Ive come is £80k, which was from 1st Sept 2022 to 1st Sept 2023. So as you can see, Im teetering!

I dont anticipate exceeding the threshold per se, but its close.

IF (and its a big 'if') I do breach the threshold in any 30-day consecutive period, then contact them immediately and ask HMRC to grant exception? I suppose thats my only option isnt it?

Once this big job is over Im in the clear and can bring my income down back to more comfortable levels.

Thanks

[Trevor S]

The £85k threshold, based on the past 12 months, only needs to be considered monthly.

The bit about a 30-day consecutive period is a "forward-look" at the next 30 days alone. So, say you thought your turnover for the month of Oct 2023 alone would be £90k - you would become liable to register for VAT regardless of what the past 12 months turnover had been. And there's no ability to ask for an exception to registration under the forward-look.

But, from what you've said, it seems unlikely that you'll breach the forward look. So you just need to consider the last 12 months on a monthly basis, then request the exception if/when that breaches the £85k.

[jtufty]

Thanks @Trevor.

Apologies, I mispoke in my last post (I was half asleep). Instead of "If... I do breach the threshold in any 30-day consecutive period", what I meant to say was "If... I do breach the threshold in any 12 month consecutive period"!

Anyway, I realised yesterday that my calculation were slightly incorrect. My TTM was including the same month the previous year! (ie: Oct 22 to Oct 23, rather than Nov 22 to Oct 23!). So this is given me much more breathing space.

Ive written a formula in my excel spreadsheet which - once a month - calculates my TTM.

Ive learnt a lot in the past 48 hours! (about VAT, what TTM is, writing formulas in Excel)