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What is the VAT threshold?

Currently the VAT (Value added Tax) threshold in the UK is £85,000. This is set to increase to £90,000 effective from the 1st April 2024. 


This means that businesses with a turnover exceeding the threshold in a 12-month period must register for VAT. Once a limited company's taxable turnover exceeds the threshold in any 12-month period, it is required to register for VAT with HM Revenue & Customs. After registration, the company must charge VAT on its taxable goods and services at a rate of 20%. 


This can be particularly problematic for smaller businesses when exceeding the threshold as they may be left with a tough decision to either increase the price on their products/services to cover the 20% VAT charge owed to HMRC, which could potentially result in loss of business due to the increase in price. Alternatively, to prevent the loss of business, suffer the loss of profit themselves by keeping their price the same and pay the VAT owed to HMRC from their own pocket.


At Ultra Tax Ltd, we understand the importance for limited companies to maintain accurate records of their business transactions and VAT calculations to ensure compliance with HMRC requirements. It is also extremely important to ensure that VAT returns are understood thoroughly as often times Limited companies can claim a VAT Rebate, ultimately retaining more cash in the business. When a limited company purchases goods or services for business purposes, it generally pays VAT on these transactions. The VAT paid on these purchases can be reclaimed, provided they are directly related to the company's taxable business activities.

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