VAT threshold 2011

UK VAT registration threshold 2011

As you know, there is a special tax in the UK, almost every business has to pay. This tax is called VAT (value added tax). There is a law in Britain, which makes it obligatory to register for VAT if your business has made more than £73,000 of the VAT taxable turnover for the previous year. This figure is called VAT registration threshold.

To be clear, VAT-taxable turnover is a sum of all the goods you’ve sold and services you’ve provided that belong to the group of VAT-taxable.

In the UK the government usually changes the VAT threshold once a year. The changes are announced in the Budget. That’s why you have to check your turnover regularly and see if it doesn’t outstrip the VAT threshold 2011. And if it does – you have to register for VAT.

In case your turnover hasn’t exceeded the threshold yet, but you think it will outstrip it in 30 days, you have to have to register for VAT also.

But nowadays there is a pretty obvious tendency among the small firms to avoid VAT registration. Some UK economists say that it normal. Because when a firm’s turnover exceeds UK VAT threshold (£73,000 - as of April 2011), this entrepreneurship has to register for VAT. It means that after registration an entrepreneur has only two ways of continuing his activity: either increasing the prices for 17.5% or decreasing his profit. But both options are not quite efficient for a businessman. Even if the prices are increased, he is likely to lose his clients and in this way to lose his profit.

That’s why some businesses are separated nowadays. What does this mean? For example if a family owns a shop. Then it’s better to divide goods for two departments. After that each department will be run by separate member of the family. For example, wife will control the clothes - department, and a husband, the shoe department. In such case this looks like two separate businesses. And of course all the costs and accounts etc have to be separate. This way the turnover won’t possibly exceed VAT registration threshold soon.