If your business turnover is getting close to the VAT threshold, one unusually large job can tip you over it sooner than you expect.
It does not matter that the job is a one-off. If it counts towards your taxable turnover, it still counts when you work out whether you need to register for VAT.
How the VAT threshold applies to a large job
The VAT registration threshold is currently £90,000 of taxable turnover. Under the standard registration test, you need to work out your taxable turnover for the previous 12 months at the end of each month.
If, for example, you have made £75,000 of taxable sales over the previous 12 months and then complete a £20,000 job, your rolling total would rise to £95,000. Assuming the whole amount is taxable, you would have crossed the registration threshold.
There is also a separate rule where you expect your taxable turnover to exceed £90,000 in the next 30 days alone.
HMRC provides the example of a business agreeing a £100,000 contract for work to be carried out within a month.
In this type of scenario, the business must register for VAT as soon as it realises it will exceed the threshold, rather than waiting until the work is complete.
Find out more about both tests in HMRC’s VAT registration guidance.
The threshold is based on taxable turnover, not profit. If you invoice £25,000 for a job and spend £10,000 carrying it out, the £25,000 sale is the relevant figure for VAT purposes.
What if the job only takes you over the threshold temporarily?
If you exceed the threshold under the normal rolling 12-month test but expect your turnover to fall again, HMRC may agree that you do not need to register.
You have to apply for an exception and show that you expect your taxable turnover to remain below the VAT deregistration threshold over the following 12 months.
This can be relevant where one unusually large contract has caused a short-term jump in turnover, but your normal level of business is much lower.
You cannot simply leave the large job out of the calculation because you do not expect to earn the same amount again. HMRC has to agree to the exception.
The exception also does not apply if you are caught by the separate rule requiring registration because you expect to exceed £90,000 in the next 30 days alone.
See HMRC’s guidance on applying for an exception from VAT registration.
What if the contract is spread over several months?
A contract worth more than £90,000 does not necessarily mean the entire amount is added to your taxable turnover on the day you sign it.
The timing can depend on when the work is supplied, when invoices are issued and when payments are received.
Deposits and instalments can change when the turnover counts, so you cannot always treat the full contract value as landing on day one.
If a big contract could push you towards the threshold, check the timing before you send the first invoice.
What happens if the job takes you over £90,000?
If your rolling 12-month total goes over £90,000, you normally have 30 days from the end of that month to notify HMRC. Your VAT registration then takes effect from the first day of the following month.
The timing is different under the 30-day future-turnover test, where registration can take effect from the date you first knew you would exceed the threshold.
Read our VAT registration guide, which explains the process in more detail. If you have already crossed the threshold without noticing, see what happens if you go over the VAT threshold by mistake.
Check the VAT position before agreeing the price
A large job can become less profitable if it pushes you into VAT registration, especially if the customer cannot reclaim the VAT.
If you are already close to the threshold, check your rolling turnover before you agree the price. Otherwise, you could end up having to pay part of what you charged over to HMRC.
For more information, read our VAT registration threshold guide and our main small business VAT guide.