Do you need to register for VAT?

The two tests

You must register for VAT if either of these applies:

• Looking back: your VAT-taxable turnover for the last twelve months is over £90,000. Check at the end of every month on a rolling basis, not just at your year end. You must register within 30 days of the end of the month in which you went over.
• Looking forward: you expect your VAT-taxable turnover in the next 30 days alone to exceed £90,000. You must register by the end of that 30-day period.

VAT-taxable turnover includes zero-rated sales but not exempt or out-of-scope income. If you run more than one business as the same legal person, their turnover is combined.

Registering voluntarily

You can register below the threshold. It can make sense if most of your customers are VAT registered and can reclaim the VAT you charge, or if you have significant costs carrying VAT. It is less attractive if you sell mainly to the public, because you will usually need to add VAT to your prices or absorb it. Registration also brings Making Tax Digital for VAT obligations.

Choosing a scheme

Most businesses account for VAT on invoices issued and received. Alternatives include cash accounting and the Flat Rate Scheme, where you pay a fixed percentage of turnover. The Flat Rate Scheme is open to businesses with VAT-taxable turnover of £150,000 or less, but “limited cost businesses”, those spending very little on goods, must use a 16.5% rate, which often removes any benefit.

If you have registered late

If you register late, you must pay VAT on the sales you have made since the date you should have registered, even if you did not charge your customers VAT. A penalty may also apply, depending on how much is owed and how late the registration is. The sooner a late registration is dealt with, the better.

Deregistering

You can ask HMRC to cancel your registration if your VAT-taxable turnover drops below the deregistration threshold of £88,000. You must cancel within 30 days if you are no longer eligible to be registered, for example, because you have stopped trading. If you reclaimed VAT on stock and assets you still hold, you may need to account for VAT on them when you deregister, where the total due is more than £1,000.

Anewthing can check your position, handle the registration and advise on schemes. See VAT registration and deregistration.