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 make 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 is currently £85,000 UK taxable turnover in either the past 12 months (to the end of a given 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 means taxable sales with a UK place of supply. Income that is exempt from UK VAT or has a non-UK place of supply doesn't count towards the UK VAT registration turnover thresholds, This is the total of everything sold that is not VAT exempt or outside the scope of UK VAT. Successful campaigning by the Federation of Small Businesses has ensured this threshold has remained at this level.
|VAT registration for UK-established businesses||More than £85,000|
|VAT registration for non-UK-established businesses||£0|
|Registration for distance selling* into Northern Ireland||More than £70,000|
|Registration for bringing goods into Northern Ireland from the EU||More than £85,000|
|Deregistration threshold||Less than £83,000|
*distance selling means selling goods from EU-help stock to a non-VAT registered customer in a different EU (including Northern Ireland) country.
When should I register?
You have to notify HMRC of your requirement to register within 30 days of the date you exceeded the 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 £85,000, you must notify HMRC by 30 September, and your effective date of registration will be 1st October.
If you think your UK taxable turnover will be more than £85,000 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.
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.
You’ll get a VAT registration certificate within 30 working days to your VAT online account.
Your registration date is your ‘effective date of registration’, so you’ll have to pay HMRC any VAT due from this date.
My turnover is under £85,000. Should I register voluntarily?
Currently, all VAT-registered businesses above the threshold must follow new Making Tax Digital rules. From April 2022, this will apply to all VAT-registered businesses, regardless of turnover.
An advantage of being VAT registered voluntarily however 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 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.
My turnover is now below £85,000. 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 taxable supplies, or join a VAT group.
The VAT deregistration threshold is £83,000 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.