A version of this article was first published here in May 2022.
Not sure if you need to register for VAT, or unsure how to go about the process? Don’t worry - our VAT experts from FSB Tax Investigation Protection answer your commonly asked questions about VAT registration for small businesses.
As your business grows, you may reach the point where you need to register for VAT with HMRC once you meet the threshold. You’ll get a VAT number and will need to submit VAT returns. You can’t register for VAT if you are not in business, or if you only sell VAT-exempt goods and services.
When you’re VAT registered, you’ll need to:
- Charge the right amount of VAT to your customers
- Pay any VAT due to HMRC
- Submit quarterly VAT returns
- Keep records
What is the VAT threshold?
The threshold from 1 April 2024 is £90,000 UK taxable turnover in either the past 12 months (to the end of a given calendar month) or in the next 30-day period alone. Taxable (sometimes called VATable or VAT taxable) turnover means sales are subject to either the standard, reduced or zero rate of UK VAT. UK taxable turnover means taxable sales with a UK place of supply. Income that is exempt from UK VAT or has a non-UK place of supply does not count towards the UK VAT registration turnover threshold. Successful campaigning by the Federation of Small Businesses has ensured this threshold was increased after years of staying at £85,000.
| Circumstance | Threshold |
|---|---|
| VAT registration for UK-established businesses | More than £90,000 |
| VAT registration for non-UK-established businesses | £0 |
| Registration for distance selling* into EU Member States and Northern Ireland | €10,000 |
| Registration for bringing goods into Northern Ireland from the EU (EU acquisitions) | More than £90,000 |
| Deregistration threshold | Less than Less than £88,000 |
*distance selling means selling non-excise goods from EU-held stock to a non-VAT registered customer in a different EU (including Northern Ireland) country. Registration can be made via the various countries sold to in this way, or a One Stop Shop registration that covers the whole of the EU and Northern Ireland.
When should I register?
You have to notify HMRC of your requirement to register within 30 days of the date you exceeded the UK VAT threshold.
If you exceeded the VAT threshold on the basis of historic sales (12-month look-back basis) your date of registration will be 1 month and 1 day after the month-end you exceeded the threshold. For example if, in the 12 months to 31st August, your UK taxable sales exceeded £90,000, you must notify HMRC by 30 September, and your effective date of registration will be 1st October. HMRC may, upon request, allow you to avoid registering if you will be making mainly zero-rated sales (exemption from registration) or if you are only temporarily over the threshold (exception).
If you think your UK taxable turnover will be more than £90,000 in the next 30-day period alone (look-forward basis) then you must notify HMRC of this within 30 days and you will be VAT registered from the date this expectation arose. For example if, on 12th March, you take an order for £90,000 of UK-held goods, to be delivered in 3 weeks’ time, you must notify HMRC by 11th April, and your effective date of registration will be 12th March. Exception from registration is not available for look-forward registrations.
You may face a penalty if you notify your requirement to register late and HMRC will back-date the registration to when you went over the threshold. This means you will owe HMRC any VAT on your income between being required to be registered and HMRC actually registering you.
How do I register?
Register online with HMRC. You’ll get a VAT online account which you need to submit your VAT return to HMRC. There are some circumstances where you may need to register by post on a VAT1 form. Have information about your turnover, business activities and bank details to hand when you complete your application.
You should get a VAT registration certificate within 30 working days to your VAT online account unless HMRC is experiencing delays.
Your registration date is your ‘effective date of registration’, so you’ll have to pay HMRC any VAT due on sales income from this date.
My turnover is under £90,000. Should I register voluntarily?
An advantage of being VAT registered voluntarily is that, to the extent your purchases relate to taxable income-generating activities, you can recover the UK VAT on costs incurred from HMRC, meaning only the net purchase amount is a cost to your business. The downside of course is that any VAT in your income is payable to HMRC. Businesses that make mainly zero-rated or outside-the-scope-of-UK-VAT sales of goods/services however may benefit from being VAT registered voluntarily. A business might also register early for commercial reasons, for example, some businesses will only trade with VAT registered businesses suppliers / customers.
My turnover is now below £90,000. Do I need to deregister for VAT?
Being VAT registered below the threshold is optional, however, you must cancel your registration within 30 days if you’re no longer eligible. For example, if you stop trading, stop making (or intending to make) taxable supplies, or join a VAT group.
The VAT deregistration threshold is £88,000 or less and you can cancel online with HMRC. When you de-register, you may have to pay VAT to HMRC on stocks and assets the business still has on hand.
Can I claim VAT back?
If you’re VAT registered you may be able to claim VAT back on eligible purchases through your VAT return for that accounting period. You can’t recover UK VAT on costs of any non-business activities and generally not on costs of VAT-exempt activities either. On your first VAT return you can also claim back VAT on certain costs incurred before you became VAT registered.
Making your claim
You need to keep records to support your claims, including valid VAT invoices. You’ll then report how much VAT you’ve paid and collected during the period in your VAT return.
Anything else I should think about?
Once VAT registered, you will need to abide by the VAT record-keeping requirements, including Making Tax Digital for VAT.
Revenue is only recognised for VAT purposes if the tax point (or time of supply), is triggered. This is not necessarily the time as when you would recognise the income for income tax or accounting purposes. Generally, for VAT purposes, the tax point of a supply is the earlier of receiving payment (including deposits) or completing/delivering the supply. Once VAT registered, issuing a VAT invoice can also trigger a tax point.
If you make reduced or standard rated supplies to another UK VAT registered customer, you must, generally, issue them a VAT invoice no later than 30 days after the tax point.
There are a number of VAT administration schemes available to small businesses aimed at simplifying administrative requirements and / or cash flow. These are: the annual accounting scheme; the cash accounting scheme; the flat rate scheme; and, the agricultural flat rate scheme for farmers.