If you own a business you will be familiar with producing accounts for each tax year. These highlight the amount of money the business has brought in during the most recent tax year, and also show what the profit or loss is. The accounts will indicate the total income and the expenditure, and the difference is the profit. If this goes above a certain amount, it will be taxed.
Most of us know this, even those who don’t have their own businesses. So what exactly is a rolling year and how does it relate to your business?
A rolling year is basically any 12-month period of time. A tax year is not a rolling year – it is a 12-month period starting and ending at the same time each year. You’ll be used to this if you have your own business, but the same doesn’t necessarily apply if you are wondering whether or not to register for VAT.
The current threshold is applied over a rolling year. This means you could be below the threshold from April to March, which is the normal tax year. However, calculate your turnover from, say, March to February, and you could go over the threshold.
This means you must make sure you keep an eye on that threshold and how close you get to it. And you need to do this on a constant basis. Remember, you’re looking at the total turnover your business has, and not the profit it returns.
So for example, let’s say your business turns over £90,000 between 1st January and 31st December one year. That would mean it would be required to be registered for VAT. This would apply even if the total outgoings during that same period amounted to £80,000. That would mean the total profit would be £10,000, and yet the business must still register for VAT. Profit does not have any relevance in this situation, and this is an important point to remember.
If you use software to help you with your accounts (it’s a good move to make, if you haven’t already done so), you should be able to check your overall turnover on a continual basis. It’s not necessary to keep an eye on it unless it gets very close to the registration threshold, but if this does happen, you might want to consider the benefits of registering anyway. If you do, you could end up coming out on top, depending on your own personal situation.
So now you know about the rolling year rule and how it applies, you’ll be better able to keep up with your turnover throughout the year. Check the current threshold too, as it can increase with the Budget each year.