You are monitoring your sales turnover like a hawk, but know you are getting closer to the £85,000 threshold and feeling a sense of dread. If you are keeping on top of your bookkeeping, and managing your cashflow, it should actually be pretty straight forward.
So how does it work?
The £85,000 turnover (sales) threshold is rolling. So if after 12 months of trading you were at £60,000 turnover, it doesn't fall back to zero at the start of the next year. You could quite easily exceed the threshold at the beginning of the next year.
You also register when you EXPECT to hit. If your increase is a one off spike, let HMRC know and you could be granted an exemption.
Once registered, you add 20% VAT onto your Goods and Services.
For example £100 + £20 VAT = £120
Some business absorb the VAT, and don't increase their prices, and pay over £16.67.
VAT registration can be considered a sign of success. You will also be surprised that your customers are happy to pay your increase in price, as they can reclaim it on their VAT return.
Most business automatically worry about VAT and want to remain under. They reduce low margin sales, or scale back.
VAT registration can be a bonus if managed well. You could put the 20% extra sales away in a separate bank account as it technically belongs to HMRC. When you claim your VAT on purchases, anything left over is yours.
If you put the 20% away, it should feel no different to before.
Continue to grow, and you will really see an increase in what you make when you reach £100,000 turnover.
There are different VAT schemes depending on the type of business, for example, the Flat Rate Scheme, and Cash Accounting.
Your bookkeeper will be able to assist with the initial registration and how far back you can reclaim on purchases, help with managing the scheme, and also registering you for Making Tax Digital VAT and submitting the returns.
Please call if you would like further information.