Chat with us, powered by LiveChat What you need to know about the UK VAT changes 2024/25

What you need to know about the UK VAT changes 2024/25

VAT changes for 2024/25
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    The UK’s VAT system is poised for change in the 2024/25 financial year. As businesses and individuals prepare for these adjustments, understanding the specifics of these changes becomes key.

    This article examines the latest VAT changes, including updates to thresholds and rates and their implications. Contact our team today to discuss how our VAT service can benefit your business.

    What are the current VAT rates?

    The VAT system in the UK categorises goods and services into different rates: standard, reduced, and zero-rated, alongside specific rules for imports and exports.

    VAT is a form of consumption tax that the UK government applies to the sale of most goods and services. Businesses don’t directly pay VAT, but instead charge consumers in the price of goods, making it an indirect form of taxation. Businesses then report revenue (VAT included) to HMRC.

    So, now that we know what VAT is, let’s take a look at the current VAT rates in the UK:

    Standard VAT rate

    The standard VAT rate in the UK currently stands at 20%. This rate applies to most goods and services supplied in the UK, constituting the default rate for many businesses.

    Reduced VAT rate

    A reduced VAT rate of 5% is applicable to certain goods and services, such as children’s car seats, home energy, and sanitation services. This rate aims to make essential goods and services more affordable.

    Zero-rated VAT

    Zero-rated goods and services are not subject to VAT at the point of sale but remain within the VAT system. Examples include most food items, books, and children’s clothing. Businesses selling zero-rated goods can still reclaim VAT on their expenses.

    Import VAT

    Import VAT applies to goods brought into the UK from abroad. The rate charged corresponds to the type of goods imported, with businesses required to pay VAT at the point of importation or through a VAT deferment account.

    Export VAT

    Exports from the UK to countries outside the VAT system are generally zero-rated, meaning businesses can reclaim any VAT paid on inputs related to the export while not charging VAT at the point of sale.

    What are the new VAT rates?

    The specific details of the new VAT rates for the 2024/25 financial year have yet to be officially announced.

    However, it is anticipated that changes may include adjustments to the standard and reduced rates to accommodate economic conditions and policy objectives. As it stands, the rates mentioned above are still accurate as of April 2024, but this may change in the coming months.

    What business sectors will be affected by the VAT changes?

    The VAT changes are expected to have a broad impact across various sectors. Sectors that heavily rely on goods and services classified under the reduced or zero-rated VAT categories may see significant changes.

    Additionally, sectors engaged in import and export activities should prepare for adjustments in VAT treatment corresponding to new regulations and trade agreements.

    Is the VAT registration threshold increasing?

    Although VAT rates haven’t been affected as of yet, the UK government has announced changes to VAT thresholds. You must now register for VAT if your taxable turnover exceeds £90,000 instead of £85,000.

    A few other important aspects of the VAT threshold to bear in mind include:

    • If goods enter Northern Ireland from the EU and values exceed £85,000, then you must register for VAT.
    • If goods are sold from Northern Ireland to EU customers with sales over £8,818 then you’ll need to register for VAT in EU countries.
    • If your taxable turnover for VAT registration falls below £83,000, then you can cancel your VAT registration.

    There are also a few considerations for VAT accounting scheme thresholds. You can join the Flat Rate Scheme if your turnover is £150,000 or under, but you must leave if you exceed £230,000.

    The Annual Accounting Scheme or Cash Accounting Scheme can also be joined if your turnover is less than £1.35 million, and you must leave if you exceed £1.6 million.

    How will VAT-registered businesses be affected?

    VAT-registered businesses must adapt to the new rates and thresholds, requiring updates to accounting systems, pricing strategies, and compliance procedures.

    They will need to closely monitor announcements from the UK’s HM Revenue and Customs (HMRC) to ensure timely compliance and optimisation of tax liabilities.

    Looking for VAT and tax advice? Get in touch with WIS Accountancy

    For businesses seeking to navigate the complexities of VAT changes and their implications, consulting with tax professionals can provide clarity and strategic direction.

    WIS Accountancy specialises in offering comprehensive VAT and tax advice, helping businesses of all sizes optimise their tax positions in light of evolving regulations.

    By partnering with experts, businesses can ensure compliance, minimise liabilities, and strategically plan for the future. So, if you have any questions about VAT or would like expert guidance and advice, please get in touch with our team at WIS Accountancy today.

    Frequently asked questions about the UK VAT changes 2024/25

    Will VAT go up in 2024?

    All VAT changes for the year are announced from April 1, 2024, so it looks as though VAT itself won’t be going up. However, VAT registration and deregistration thresholds have increased for 2024.

    How do I stay under the VAT threshold?

    The key to staying under the VAT threshold is to bring in turnover that is less than £90,000. There are other ways around this, though, such as VAT disaggregation, which splits your business up so that revenue can be divided.

    It is strongly advisable to speak with a tax professional like WIS to help with this.

    What happens if I temporarily go over the VAT threshold?

    Although you typically have to register for VAT once you reach the threshold, there are certain instances where this isn’t the case. If you temporarily exceed the threshold, you can choose to register for VAT or ask for an exemption.

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