The VAT registration threshold will be held at £85,000 until at least April 2020. This may bring more businesses into the VAT fold if they increase their prices with the rate of inflation.
Say your annual sales are £83,000. If you increase your prices by 3% in January 2018, by 2019 your turnover will be £85,490, and you will have to register for VAT within 30 days.
You could restrict your price increase so your turnover remains under £85,000, but if your purchase costs are increasing this will cut your profit margins. Alternatively, you could restrict your sales by taking longer holidays, if you can afford it.
Another idea is to hive off part of your business into a separate legal entity, so each new business has turnover under £85,000. However, this must be done with great care, as HMRC can challenge any artificial split.
The two businesses should have a bank account each, keep separate business records, and file separate tax returns. Ideally the businesses should provide different services or goods to separate groups of customers. There must be separate contracts with any common suppliers.
Action Point!
Will your business be able to stay under the VAT threshold from April 2018?
