Do you need to register your business for VAT?
Whether you are starting up a new business, running an existing company or taking over a different organisation, you will need to ensure you are operating within the rules for VAT.
If your business has or is expected to have a turnover above the VAT threshold, you will need to register for VAT using HMRC’s online service or VAT1 form.
What is the UK VAT registration threshold?
If a company has a taxable turnover of more than £85,000, it must be registered for VAT. This is a mandatory requirement.
Taxable turnover comprises the total of everything sold by the company that is not VAT-exempt.
Companies with a turnover below the threshold are also able to register for VAT on a voluntary basis.
Compulsory VAT registration
If either of the following applies to your business, it must be registered for VAT:
- If the VAT taxable turnover is expected to be more than £85,000 within the next 30-day period. Registration must be made by the end of that 30-day period. The effective date of registration will be the date you realised turnover would exceed the threshold, not the date turnover actually went over the threshold.
- If the company had a VAT taxable turnover of more than £85,000 over the last 12 months VAT registration is compulsory if at the end of any month the company’s VAT taxable turnover for the preceding 12 month period has exceeded the £85,000 threshold.
Registration must be made within 30 days of the end of the month that the threshold was surpassed. The effective date of registration is the first day of the second month after the threshold was passed.
Other circumstances also require mandatory registration, depending on the type of goods or services being sold and where they are being sold. For example, if taking over a VAT-registered business, and registration will be required if the company only sells VAT-exempt goods or services but it buys goods for more than £85,000 from EU VAT-registered suppliers to use in the business.
Voluntary VAT registration
You can register voluntarily if your business turnover is below £85,000. You must pay HMRC any VAT you owe from the date they register you.
Do overseas businesses have to register for VAT?
Businesses based outside the UK must register as soon as they supply goods or services to the UK, or within 30 days of expecting to. There is no VAT threshold for overseas businesses.
How to get a registration exception
In some cases, a company’s taxable turnover may go over the threshold for a short period.
If so, you should apply for a registration ‘exception’, evidencing why you do not expect turnover to surpass the deregistration threshold of £83,000 in the following 12-month period.
If HMRC does not accept your application, the company will be registered for VAT.
What if you register late?
Late VAT registration will mean the company has to pay what it owes, dating back to when it should have been registered.
Penalties can be issued if registration is extremely late or the sums owed particularly high.
Which VAT scheme should I use?
Businesses should consider which VAT scheme best suits the nature of their business and wider circumstances:
- The Flat Rate Scheme is for businesses with a turnover of under £150,000. Businesses pay a percentage of their turnover to HMRC, with fixed rates per industry.
- The Cash Accounting Scheme is where businesses with a turnover below £1.35 million pay HMRC the VAT income actually received during a quarter. Businesses have to have to be able to access this scheme.
- The Annual Accounting Scheme is for businesses with a turnover below £1.35 million to make advance payments throughout the year, but only have to file one annual VAT return.
- Other specialist schemes also exist for retail businesses.
How to register for VAT
VAT registration is generally done online, or in some cases by using paper form VAT1.
When making the application, you will need to provide:
- Your ten-digit Unique Tax Reference, as provided when registering to pay corporation tax
- The business’ bank account details
- Company number and registered address
- Company turnover
- Details of any associated businesses from the past two years
- Details of any businesses being transferred or bought, if applicable
You will need to set up a VAT online account with HMRC to submit company VAT returns online. You will also receive your VAT registration certificate through your online account.
What is a VAT registration certificate?
One registered, the company will be sent a VAT registration certificate (VAT4) detailing:
- The company VAT registration number. This is to be included on all receipts and invoices where VAT is being applied to goods and services.
- The effective date of registration. This is the official registration date. It is used as the first day from which VAT liability will be calculated.
- The date the first VAT Return and payment are due by
You should get a VAT registration certificate within 30 working days, though it can take longer.
Keep this document safe as a record of the company’s registration.
Can you charge VAT while you wait for registration?
No, you are not permitted to charge VAT until you are given your VAT number. However, as you will still be liable for VAT during this period, you should uplift prices accordingly and make your customers of this, and once you receive the VAT number, adjust and reissue the invoices showing the VAT element.
What being VAT registered means for your business
From the effective date of registration indicated on your VAT certificate, you have to calculate and charge the correct amount of VAT, file VAT returns and pay any VAT due on time, and you also have to maintain records and a VAT account.
Businesses with a turnover amove £85,000 also have to follow the Making Tax Digital for VAT requirements.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal, tax or financial advice, nor is it a complete or authoritative statement of the law and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert legal or other advice should be sought.