Value Added Tax is one of the first big tax decisions a growing business faces. Register too late and you can owe VAT you never charged your customers. Register early without needing to and you add admin you did not have to. This guide explains the rules in plain English. It is general information, so confirm current figures on GOV.UK or ask your accountant.
The VAT registration threshold
You must register for VAT if your VAT-taxable turnover goes over £90,000 in any rolling 12-month period (the threshold since 1 April 2024). It is not the tax year or the calendar year: you look back over the last 12 months at the end of every month. Taxable turnover is the total value of everything you sell that is not exempt from VAT, including zero-rated sales.
There is a second test. You must also register if you expect your turnover to exceed the threshold in the next 30 days alone, for example after winning one large contract.
How long you have to register
- Went over the threshold in the last 12 months: you must tell HMRC within 30 days of the end of the month in which you went over. You are normally registered from the first day of the second month after that.
- Expect to go over in the next 30 days: you must register by the end of that 30-day period, and you are registered from the date you expected to pass the threshold.
Late registration can mean you owe VAT from the date you should have registered, even though you did not charge it, and penalties may apply.
Voluntary registration
You can register before you reach the threshold. Reasons to do so include reclaiming VAT on business purchases, or looking more established to business customers who can reclaim it themselves. The downsides are that you must charge VAT to customers who cannot reclaim it (such as consumers), and that you take on VAT returns.
VAT rates
- Standard rate, 20%: most goods and services.
- Reduced rate, 5%: some items such as domestic fuel and power.
- Zero rate, 0%: some items such as most food and children’s clothes. You still count these in your turnover and report them.
- Exempt: some services such as certain finance and insurance. These do not count towards the threshold.
Use our free VAT calculator to add or remove VAT from a price.
How to register
- Gather your business details, your turnover figures and your bank details.
- Register online through GOV.UK. You will create or use a Government Gateway account.
- You receive a VAT registration number and your first return period.
- Start showing your VAT number and the VAT charged on your invoices from your registration date.
What changes once you are registered
- You charge VAT on taxable sales and show it on your invoices. See our guide to writing an invoice.
- You can reclaim VAT on business purchases, if you hold a valid VAT invoice.
- You file VAT returns, usually every quarter, and pay HMRC the difference between VAT charged and VAT reclaimed. Our guide to the nine boxes of a VAT return explains the figures.
- You must follow Making Tax Digital for VAT. Records are kept digitally and returns are sent through compatible software. This has applied to all VAT-registered businesses since April 2022.
VAT schemes that can simplify things
HMRC offers schemes for smaller businesses. The Flat Rate Scheme lets you pay a fixed percentage of your turnover instead of working out VAT on every transaction, and the Cash Accounting Scheme means you account for VAT when you are paid and when you pay, not when invoices are issued. Eligibility limits apply, so check GOV.UK or ask your accountant whether either suits you.
Leaving the scheme
If your taxable turnover falls below the deregistration threshold (currently £88,000) you may be able to cancel your registration. Think carefully, because you would also lose the right to reclaim VAT on purchases.
How AvrioBooks helps
Set up your tax rates once and AvrioBooks applies VAT to every invoice and bill. VAT returns and Making Tax Digital for VAT are available on the Standard plan and above, subject to HMRC approval. See VAT/GST returns in the help centre and AvrioBooks for small business.
Frequently asked questions
What is the VAT registration threshold?
You must register if your VAT-taxable turnover goes over £90,000 in any rolling 12-month period, or you expect to exceed it in the next 30 days.
Can I register for VAT before reaching the threshold?
Yes. Voluntary registration lets you reclaim VAT on purchases, but you must charge VAT on taxable sales and file returns.
How long do I have to register?
Within 30 days of the end of the month in which you went over the threshold. If you expect to exceed it in the next 30 days alone, register by the end of that period.
Does AvrioBooks support VAT returns?
Yes. VAT returns and Making Tax Digital for VAT are available on the Standard plan and above, subject to HMRC approval.
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