Skip to main content
Woman mechanic

Do I need to register for VAT?

Once your overall takings (excluding exempt items and ones outside the scope of VAT) for the previous 12 months exceeds the VAT registration threshold (£85,000 from 1 April 2017) you are legally obliged to register for VAT. However, a small business owner does not need to wait until they hit this threshold – many will choose to register voluntarily as it can be beneficial for them to do so. This article will cover the VAT registration process, what it means for your business and give you a brief overview of your legal obligations.

When do I need to register for VAT?

The VAT registration threshold is updated in April each year; from 1 April 2017, the VAT registration threshold is £85,000.

Once the VAT registration threshold has been exceeded, your business will need to register for VAT and charge VAT at the applicable rate to your customers.

There are two methods that you need to be aware of in terms of whether your business has exceeded the threshold:

  • The historic method (also referred to as looking back)

Look back over the last 12 months and determine whether the businesses total taxable sales (sales at 20%, 5% or 0%) have exceeded the threshold. If they have, you will have 30 days to register for VAT.

  • The future method (or the looking forward rule)

Assuming you are not already registered for VAT, if you think your total taxable sales (sales at 20%, 5% or 0%) will exceed the threshold in the next 30 days alone, you will need to register and start charging VAT immediately. In practice, this method is rarely used as most businesses will have a greater amount of total taxable sales over the last 12 months than they will in the next 30 days, so will already have been registered under the historic method.

How do I register for VAT?

You register in the following ways:

  • Register online

To register for VAT online visit HM Revenue and Customs’ (HMRC) website at www.hmrc.gov.uk

You will need to be registered for HMRC Online Services or the Government Gateway to gain access to the VAT Online Service. If you haven’t already registered you can do so here.

  • Ask your accountant to register your business for you

You can appoint an accountant to submit your returns and deal with HMRC on your behalf.

Alternatively the GOV.UK website offers more guidance on approinting someone to deal with HMRC on your behalf.

  • Register by post

You can register by post using form VAT1. However, HMRC expects all newly VAT registered businesses to submit VAT returns and payments electronically and once you receive your certificate of registration you will need to register for VAT Online Services with HMRC online.

From April 2019, most businesses are now required to keep digital VAT business records and send returns using Making Tax Digital (MTD)-compatible software. The vast majority of businesses will need to do this for VAT periods starting on or after 1 April 2019. Businesses with a taxable turnover below the VAT threshold can also sign up for MTD for VAT voluntarily.

What is voluntary registration?

Voluntary registration is where a business registers for VAT before it reaches the threshold (currently at £85,000).

If a business is making taxable sales (i.e. it is making sales that are charged at 20%, 5% or 0%) it may register for VAT before the compulsory threshold applies. There are various reasons why a business may choose to do this:

  • It may incur a lot of start-up costs. The VAT it has been charged can then be reclaimed.
  • It may sell zero rated items. No VAT would be charged on these sales, but by registering for VAT, VAT can be reclaimed on the purchases and expenses.
  • It may want to disguise its size. A business selling items which are taxable for VAT purposes without a VAT registration number is telling the world that their annual turnover is less than the registration threshold – this could put customers off buying from you.
  • If you are selling to other businesses. If your customers are VAT registered themselves, then any VAT charged to them will be reclaimed by them from HMRC.

Another key reason for a small business is to take advantage of the flat rate VAT scheme which can be financially favourable.

 

 

How do I reclaim VAT on purchases?

As long as you are registered for VAT you can usually reclaim the VAT paid on goods and services purchased (known as input tax) for use in your business.

You cannot reclaim VAT on purchases that are for private use or that relate to the goods or services your business sells that are exempt from VAT. 

In order to claim VAT back on purchases and expenses, you need a valid VAT invoice. The following link shows you what should be included on a VAT invoice

If a supplier has not sent you a valid VAT invoice and you intend to reclaim the VAT, ask for one! You can’t claim VAT without a valid VAT invoice even when the items themselves include VAT. This website is useful to check that a supplier’s VAT number is genuine and that the VAT number belongs to the business you have purchased from. You would need to be able to show evidence to HMRC that you have taken ‘reasonable care’ when dealing with your VAT affairs. Not checking that invoices are valid VAT invoices may be deemed to be ‘careless’ and penalties could be applied where there are errors.

Information relating to any VAT you wish to reclaim should be included on your VAT return. This is usually submitted to HM Revenue and Customs (HMRC) every three months. 

Can I deregister for VAT?

You can deregister for VAT, but only when your total taxable turnover drops below the deregistration threshold, which is £83,000 from 1 April 2017.

You can apply to cancel your VAT registration: 

Alternatively, if you use an accountant or bookkeeper they will be able to help you with this.

It will take about three weeks for HMRC to confirm your de-registration and the official de-registration date. You will receive confirmation to your VAT online account or through the post (if you applied by post). 

From the date of deregistration you must stop charging VAT. You are also required to keep your VAT records for six years. 

Checklist: VAT registration

This checklist is to help you keep on top of your VAT registration process. Login to save this checklist to your profile for future use. (To register to join and enjoy the benefits of membership click on the link at the top right of the page. It will only take a few minutes to create your profile).

You must be logged in to use this checklist

Login or Register

End of Article
Share this content

Register with Informi today:

  • Join over 20,000 like-minded business professionals
  • Create your own personalised account with curated reading lists and checklists
  • Access exclusive resources including business plans, templates, and tax calculators
  • Receive the latest business advice and insights from Informi
  • Join in the discussion through the comments section

or

I’ve been working through the how to start a business in 20 days ebook and so many of the things I’d done are now nicely tied together and some gaps now filled. I love the simplicity. Thank you.

Sarah Gosling – Gosling Charity Consulting

I love receiving my Informi emails. They’re always well written and engaging.

Jennifer Hobson – JEH Bookkeeping