VAT taxable turnover - What is VAT taxable turnover?

VAT taxable turnover refers to the total value of sales a business makes that is subject to tax after any VAT-exempt amounts are removed

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Taxable turnover for VAT is an important calculation to understand as it can determine whether your business is required to register for VAT in the UK. The term ‘turnover’ is often confused with ‘profit’, though the two are decidedly different.

Profit refers to the amount that remains after you’ve paid the necessary expenses. Turnover refers to the net amount over a certain period of time. In the case of taxable turnover, this is typically the previous 12 months (this can be any 12 month period).

What is excluded from taxable turnover?

When it comes to VAT taxable turnover, you might have several income streams for your business. In some cases, entire income streams are VAT-exempt. This includes:

  • Income earned through providing financial services or insurance sales

  • Income from rental properties or from the sale of buildings

  • Income earned through lottery, betting or gaming

There are certain situations in which items or supply streams are also not included in your taxable turnover:

  • Goods or services with UK origin that are considered tax-exempt

  • Any income that would be considered outside the VAT scope, such as grants

  • Services with a supply origin that’s outside the UK

The industry that your business is in can also have a big impact on what income is included or excluded from your taxable turnover. If you’re in doubt, it’s best to get in touch with an accountant to best assess the situation of your business.

According to HMRC, VAT-exempt sales, as well as goods and services supplied to customers outside of the UK can also be excluded.

What is included in taxable turnover?

There are a few things that HMRC has made clear that should be included when determining the taxable turnover of a business, including:

  • Goods that were gained for your business through barter, exchange or as gifts

  • Goods that were loaned or rented to customers

  • Any goods purchased for the business that are also for personal use

  • Any goods received from abroad that fall under the ‘reverse charge’

  • Building done by and for your business over £100,000

  • Zero-rated items 

How to calculate your taxable turnover

Turnover is a fairly simple calculation that can be done regularly and can be a good indicator of the financial health of the business. The turnover of a business should be easy to determine with accurate records: find the total sales amount for a given period.

To determine the VAT taxable turnover, you would then need to subtract any amounts that can be excluded (aren’t subject to VAT). This should give you a good idea of where your business stands when it comes to the VAT threshold. You can likely then break it down to determine what your next few months will look like (especially important in the case that you’re close to the threshold).

What do I do if my taxable turnover is above the threshold?

If, according to your calculations, the taxable turnover of your business is above the VAT threshold of £85,000, then it’s required that your business be VAT registered. This can be done pretty simply through the HMRC website.

It’s then also required, as of April 1st, 2019, that you use HMRC-approved software to submit your VAT returns online to comply with the requirements of Making Tax Digital.

There are some time restraints for registering for VAT: you have 30 days to inform HMRC once you notice that your taxable turnover for the 12 previous months falls above the threshold.

Becoming VAT registered will not only have an impact on what you can claim but may also affect the prices of your business offerings. Keep this in mind when you’re close to the threshold.

Different taxable turnover thresholds

There are different VAT thresholds depending on specific circumstances. While the general VAT registration threshold is £85,000, this number differs if you’re distance selling, or wish to deregister, for example.

VAT taxable turnover under Making Tax Digital

With the arrival of Making Tax Digital, it’s more important than ever that businesses have a good understanding of their current taxable turnover. Not only will businesses over the current threshold be required to register for VAT, but they’ll also need to find HMRC-approved Making Tax Digital software for record-keeping as well as to submit VAT returns online.