When Do I Need to Register for VAT?

If you're running a business in the UK, understanding when you need to register for VAT is essential. VAT registration becomes compulsory once your turnover reaches a certain threshold, but you can also choose to register voluntarily even if your sales are below this level. This article explains the registration requirements, what they mean for you, and your responsibilities once registered.

What is VAT?

VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses. As a VAT-registered business, you charge VAT to your customers and can reclaim VAT you've paid on business purchases. The difference between what you charge and what you've paid is then reported to HMRC.

When you must register for VAT

You must register for VAT if:

• Your total taxable turnover is over £90,000 in a 12-month period
• You expect your turnover to go over £90,000 in the next 30 days
• You and your business are based outside the UK, and you supply (or expect to supply) any goods or services to the UK within the next 30 days

Your "taxable turnover" means the total value of everything you sell that is not exempt from VAT. This is the figure you use to work out whether you're over the threshold.

There's also a specific threshold of £90,000 for bringing goods into Northern Ireland from the EU (known as 'acquisitions').

Voluntary VAT registration

You can choose to register for VAT even if your taxable turnover is below £90,000. This is called voluntary registration.

Voluntary registration can make sense if you buy goods or materials with VAT included, as you'll be able to reclaim this VAT. However, you'll also need to charge VAT to your customers, which could make your prices less competitive if you sell mainly to non-VAT-registered customers or consumers.

Cancelling your VAT registration

Once registered, you can cancel your VAT registration if your taxable turnover falls below £88,000. This is optional—you can choose to remain registered if it benefits your business.

Your responsibilities as a VAT-registered business

Once you register for VAT, you must:

• Charge VAT at the correct rate on all goods and services you sell. The standard rate is 20%, but some items are charged at reduced rates or zero-rated
• Keep records of how much VAT you pay on things you buy for your business
• Account for VAT on any goods you import into the UK
• Submit a VAT return to HMRC reporting the amount of VAT you charged your customers and the amount you paid to other businesses—this is usually done every 3 months
• Pay any VAT you owe to HMRC

The VAT you actually pay to HMRC is the difference between the VAT you've charged your customers and the VAT you've paid to other businesses. If you've charged more than you've paid, you pay the difference to HMRC. If you've paid more than you've charged, HMRC will usually repay you the difference.

What VAT is charged on

VAT is charged on "taxable supplies", which include:

• Goods and services (a service is anything other than supplying goods)
• Hiring or loaning goods
• Selling business assets
• Commission
• Items sold to staff, such as canteen meals
• Business goods used for personal reasons
• Non-sales transactions like bartering, part-exchange and gifts

VAT is not charged on goods or services that are exempt from VAT or are outside the scope of VAT ("out of scope").

VAT rates

There are three different rates of VAT:

• Standard rate: 20%—applies to most goods and services
• Reduced rate: 5%—applies to certain goods and services
• Zero rate: 0%—applies to items like books, newspapers, children's clothes and shoes, and most goods exported outside the UK

You should charge the standard rate of 20% unless the goods or services you're selling are specifically classed as reduced or zero-rated.

VAT schemes to simplify your accounting

Once registered, you can join voluntary VAT schemes that simplify how you calculate and report VAT. These schemes don't change the amount of VAT you charge customers, but they can reduce your administrative burden.

VAT Flat Rate Scheme: Available if your annual taxable turnover is £150,000 or less (excluding VAT). You pay HMRC a fixed percentage of your gross turnover, with the percentage depending on your industry. You must leave the scheme if your turnover exceeds £230,000.

VAT Annual Accounting Scheme: Available if your annual taxable turnover is £1.35 million or less. You complete one VAT return each year instead of four quarterly returns. You must leave the scheme if your turnover exceeds £1.6 million.

VAT Cash Accounting Scheme: Available if your annual taxable turnover is £1.35 million or less. You pay VAT to HMRC when your customer pays you, rather than when you invoice them. You must leave the scheme if your turnover exceeds £1.6 million.

There are also specialist schemes for retail businesses and those selling second-hand goods.

Planning ahead

Before registering for VAT, it's worth estimating what VAT you might owe or reclaim. You'll need information about your business sales and costs, including:

• Income you've received
• What you've paid for stock or materials
• Your overhead costs

You should also know what VAT rates apply to your income and costs, and what proportion (if any) are exempt or out of scope for VAT.

Remember that there are certain costs where you cannot reclaim VAT, such as anything used only for personal purposes or goods and services used to make VAT-exempt supplies.

Sources

• Check what registering for VAT may mean for your business
• How VAT works

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.