VAT is a tricky tax issue that can confuse business owners, as it is a tax which works by businesses incorporating it into their pricing strategy and then claiming for it via HMRC. This isn’t a straightforward concept, so we’re breaking it down into as clear a process as possible.
A business that earns revenue above a certain threshold (£85,000 as of 2023/24) must register for VAT. Some businesses may also voluntarily register for VAT, as there are certain advantages to doing so that we’ll explore further down in this guide.
As a business owner, you are responsible for recognising when your business is eligible for VAT and registering for it accordingly. Failing to register can lead to heavy penalties which will take a chunk out of your revenue – so it’s important to understand how registration works.
Before you register, let’s ensure you understand what VAT is and what it’s for. If you want to know more about the revenue threshold that impacts whether you repay VAT, you can learn more with our VAT threshold guide.
Understanding VAT: a quick introduction
VAT – or Value Added Tax – is a tax on most goods and services in the UK and the EU. When you buy a product that is eligible for VAT in a shop, for example, VAT is automatically included in the price you pay.
Three rates of VAT apply to goods and services in the UK:
- Standard Rate (currently 20%) - anything deemed a luxury item will be subject to this rate.
- Reduced Rate (currently 5%) - applies to specific items such as mobility aids, children’s car seats, energy etc. Which goods this rate applies to often changes based on government focus - such as during the COVID-19 pandemic when it was applied to hospitality.
- Zero Rate (0%) - reserved for essential items such as children’s clothing, food and books.
- Items may also be exempt (or ‘outside the scope’) of VAT.
VAT isn’t just about adding a charge. It also allows VAT-registered businesses to reclaim VAT from HMRC. This is based on the difference between the amount of VAT you have charged versus the amount of VAT you have paid.
If your business meets the VAT threshold, you must register for VAT so you can charge the appropriate VAT rate to your clients or customers when providing goods or services. This can feel intimidating to newer businesses since it generally means adding a 20% charge on top of the prices you’re used to, but it is necessary to avoid penalties.
When must I register for VAT?
Legally, you must register for VAT when:
- Your VAT-taxable turnover (the total of all sales that aren’t exempt from VAT) exceeds the current threshold of £85,000 within a 12-month period (on a rolling basis)
- You expect your VAT-taxable turnover to exceed the threshold in a single 30-day period
- You only sell goods or services that are exempt from VAT, but you purchase goods to use in your business to the value of more than the threshold from VAT-registered suppliers in the EU.
You need to register for VAT within 30 days of meeting any of these criteria.
If you know your turnover will reach the threshold soon, you should allow enough time to register. If you fail to notify HMRC in time, you may be liable to pay a penalty!
There are some situations in which it may be beneficial to voluntarily register for VAT before you reach the threshold(see below).
If you are using the VAT MOSS scheme you may need to register for VAT in the UK. Read our article for more detail on VAT MOSS.
Exploring the benefits and drawbacks of VAT registration
VAT registration might sound like a scary idea for the reason we’ve just covered – but the scheme has advantages for your business too. VAT isn’t a black-and-white issue – registration impacts each business differently and depends on a few different considerations. Here are the main benefits and drawbacks and the ways they can impact you:
- Standard rate VAT-registered businesses can claim the VAT they spend back from HMRC. This means you will be able to claim for the extra 20% you pay on services or goods from other VAT-registered businesses. If, historically, you’ve done business without being VAT-registered, this may boost your cash flow in a way you’d never considered.
- You must charge the appropriate VAT on your goods or services, which might seem like a negative to your existing clients or future ones as it represents a price increase. However, provided you do business with other VAT-registered companies, the added cost is simply part of the usual cycle. Most successful businesses are accustomed to paying and reclaiming VAT, which is why it’s common to see prices given excluding VAT.
- Small businesses can appear more credible by being VAT-registered and displaying your VAT number on invoices, letterheads etc. Some larger businesses only work with other VAT-registered businesses to ensure both parties can reclaim the tax.
- Any of your clients or customers who are not VAT-registered must bear the full cost of the added VAT charge, which might lead to them not using your services any more.
- If you generate more VAT than you pay, you must repay VAT to HMRC in what can be a hefty added bill.
- You must keep extensive VAT records to ensure you comply with VAT laws, which can be an administrative burden.
Preparing for VAT registration: what do you need to know?
Now that you understand what VAT is and how it affects businesses, you need to know how registration works. Here’s everything you need to know before you go ahead and register.
Who can register for VAT?
You can register for VAT voluntarily as either type of business. Once your business revenue reaches the VAT threshold, registration is mandatory.
Can I register for VAT without an accountant?
Yes - you don’t need an accountant to register for VAT. You can register online with HMRC, after which you’ll receive a VAT number and an online VAT account to help track your returns.
However, being VAT-registered incurs significant bookkeeping and administrative burdens as you’ll need to track all VAT sales and purchases, then regularly complete your VAT return. We’d advise working with an accountant for your VAT responsibilities as the time-savings can quickly repay any costs – especially given that a reliable accountant can help you avoid the pitfalls that can lead to fines.
If you nominate an accountant to take care of VAT on your behalf, you can still use your VAT number to view your online VAT account.
What do I need to register?
Depending on which type of business you run, you’ll need a certain set of information to be able to register for VAT. These are fairly standard and should be easy to access, but we’ve included them here to make things clear.
Limited companies need to provide the following:
- Your company’s legal name
- Turnover information
- Nature of your business
- Unique Tax Reference (UTR) number
- Company registration number (you can find this on Companies House)
- Company bank details
As part of your registration, HMRC will ask about other taxes and payments – so keep your financial records to hand with information on any corporation tax, PAYE and self-assessment.
Sole traders and partnerships must provide:
- Date of birth
- National Insurance number
- ID such as a passport or driving licence
- Turnover and the nature of your business
- Bank account details
Unlike limited companies, you don’t need a UTR to register for VAT. If you do have one, however, you must provide it. You’ll also need to provide information about payslips, self-assessments and any P60s – so keep financial records close to hand.
Step-by-step guide on how to register for VAT
While the concept of VAT is complicated, registering is simple. Thanks to the government’s digital service, you can easily register online in just a few short steps. If you’d rather register via a paper form, there’s an option to do so known as the VAT1 form. Let’s take a look at how you can do either:
How to register for VAT online
1. Prepare for your registration by gathering the documents and information we’ve discussed above.
2. Visit this page to register for VAT via your Government Gateway ID. You’ll need to either create a new account, or sign-in to an existing one.
3. Once logged in to your account, navigate to the heading “Get another tax, duty or scheme” and click the associated button.
4. Select VAT from the options and then follow the steps in the portal.
5. Once you complete your registration, your Government Gateway account will become your VAT online account and you’ll receive a VAT certificate within 30 days.
6. The certificate contains your VAT number and will also tell you when to submit your first VAT return.
How to register for VAT with a paper form
1. Click the link to save a copy of the VAT1 form
2. Print the form and then go through each section, completing it with all the relevant information
3. If you struggle with any parts of the form, take a look at HMRC’s helpful notes on completing VAT1 forms.
4. If you’re registering for VAT and any of the following criteria apply, you’ll need to include additional forms in your registration. Simply click the option that applies to you and we’ve linked the relevant form.
5. Send the form(s) to HMRC and await your VAT number.
Choosing your VAT accounting scheme: overview
When you register for VAT, you’ll also have the chance to choose a VAT scheme. We’d always recommend asking an accountant for advice, as each scheme’s value depends on your circumstances.
Each scheme offers something different in the way you will report and repay VAT. Additionally, some businesses earning over certain thresholds will only be able to access certain schemes. See our VAT threshold guide to learn more.
Annual Accounting VAT Scheme
With annual accounting, you complete a single VAT return each year. You’ll still have to make regular VAT payments throughout the year – either using an estimated figure if you’re new to VAT, or based on your last VAT return.
VAT Flat Rate
The VAT flat rate scheme aims to simplify the process by making businesses pay a percentage of all turnover as VAT. VAT deductions are based on what you sell rather than what you buy, so if you’re a service provider that doesn’t spend a lot on goods or services but includes VAT in your charges, this scheme can be beneficial.
VAT Cash Accounting
Cash accounting is when you only pay VAT once a customer or client has paid you for your goods/services. Unlike the standard system, where you’ll pay VAT even on an unpaid invoice once it is issued, cash accounting helps protect your cash flow.
What happens after you register for VAT?
Once you’ve registered, you’ll receive a VAT certificate that contains your VAT number within 30 days. If you haven’t heard anything from HMRC within this timescale, it’s worth contacting them to see what is delaying your registration.
The VAT certificate also tells you when you’ll need to submit your first VAT return, which you can do by logging into your online VAT account using your VAT number.
Remember that your VAT obligation and accounting starts from the date at which you exceeded the £85,000 VAT threshold and not when you completed your registration.
Keeping digital records for VAT
Managing your VAT obligations is all about good record-keeping. We’d recommend using a digital tool to keep track of all of your invoices and payments, but also downloading local copies and storing them on a hard drive.
Ready to get started?
If you think you’re ready to register for VAT, or you want to make your company’s VAT duties as simple as possible, consider choosing Crunch. Our free accountancy software includes a streamlined VAT submission service. You can access our VAT calculation tools for free and even file your return simply and effectively for just £3.75+VAT each quarter.
FAQs on VAT Registration
Can anyone register for VAT?
Anyone in the UK that does business as a sole trader, partnership or limited company can register for VAT.
How much does it cost to become VAT registered?
VAT registration is completely free.
Can I register for VAT with no turnover?
All businesses can register for VAT voluntarily without meeting the VAT threshold.