Do I Need to Register for VAT and When Is It Required?

VAT registration becomes mandatory once your taxable turnover exceeds £90,000. Learn when to register, the benefits of voluntary registration, and how to stay compliant with HMRC.

Introduction

Value Added Tax (VAT) is a key part of running a business in the UK, and understanding when you need to register is essential for staying compliant with HMRC. Whether you are a sole trader, partnership, or limited company, VAT registration becomes mandatory once your business reaches certain turnover thresholds.

This article explains when VAT registration is required, how the rules work, what happens after you register, and when voluntary registration might also make sense.

What Is VAT?

VAT is a tax charged on most goods and services sold in the UK. Businesses that are VAT registered add VAT to their sales (known as output tax) and can reclaim VAT on purchases they make (known as input tax).

Not all businesses need to register. Registration only becomes mandatory when your taxable turnover exceeds a specific amount set by HMRC, though some businesses choose to register voluntarily before hitting that limit.

The VAT Registration Threshold

As of the 2024 25 tax year, you must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period.

The threshold applies to the total value of taxable supplies, which includes:

  • Goods or services sold that are subject to VAT (even at 0%).

  • Any services performed in the UK that would normally attract VAT.

  • Items you lease, rent, or hire out.

The 12-month period does not have to align with your accounting year. HMRC looks at the most recent 12 months on a rolling basis, meaning you must check monthly whether your turnover has crossed the threshold.

When You Must Register Immediately

You must register immediately if:

  • You expect your taxable turnover to exceed £90,000 in the next 30 days alone (for example, after signing a large contract).

In this case, you must register within 30 days of the date you realise your turnover will go over the threshold. The effective registration date is the date you expect to exceed it, not when it actually happens.

Late Registration

If you fail to register on time, HMRC can charge:

  • Backdated VAT on sales from the date you should have been registered.

  • Penalties and interest for late registration.

To avoid this, check your turnover regularly and apply as soon as you approach the threshold.

Voluntary VAT Registration

Even if your turnover is below £90,000, you can choose to register voluntarily. This can be beneficial if:

  • You buy a lot of goods or services that include VAT and want to reclaim it.

  • Your customers are VAT registered and can reclaim VAT you charge.

  • Being VAT registered adds credibility to your business.

However, voluntary registration is not always the best option if you sell mainly to consumers who cannot reclaim VAT, as it will make your prices effectively higher.

Types of VAT Registration

When registering, you must choose the appropriate VAT scheme for your business. Common options include:

  1. Standard VAT Accounting:

    • You report VAT based on invoices issued and received.

    • You file VAT returns quarterly.

  2. Flat Rate Scheme:

    • Designed for small businesses with turnover under £150,000 (excluding VAT).

    • You pay a fixed percentage of your turnover to HMRC and keep the difference as profit.

    • Simpler to manage but may not always offer the best savings.

  3. Cash Accounting Scheme:

    • You pay VAT on sales only when customers pay you.

    • You reclaim VAT on purchases only when you pay your suppliers.

    • Useful for improving cash flow, especially if clients pay slowly.

  4. Annual Accounting Scheme:

    • You make advance payments towards your VAT bill throughout the year and file one VAT return annually.

    • Helps spread payments evenly and reduce paperwork.

Choosing the right scheme depends on your turnover, business type, and cash flow.

What Happens After You Register

Once registered, HMRC will send you a VAT registration number and confirm your registration date. You will then:

  • Charge VAT on all taxable sales.

  • Display your VAT number on invoices and receipts.

  • Submit VAT returns (usually every quarter).

  • Keep digital records of all transactions.

You can reclaim VAT on eligible business expenses, including equipment, stock, and professional fees, provided they relate to your VAT-registered activity.

Reclaiming Pre-Registration VAT

You can reclaim VAT on goods and services purchased before registration, provided they were used for business purposes and you still hold them at the time of registration.

  • Goods: You can reclaim VAT on goods bought up to four years before registration.

  • Services: You can reclaim VAT on services bought up to six months before registration.

Make sure you have valid VAT invoices and records to support your claim.

De-Registering for VAT

You can apply to cancel your VAT registration if:

  • Your taxable turnover falls below £88,000 (the de-registration threshold).

  • You stop trading or sell your business.

  • Your business changes structure and a new registration is needed.

When you de-register, you must submit a final VAT return and may have to account for VAT on business assets such as stock or equipment you keep.

Common Mistakes to Avoid

  • Not checking turnover regularly: You must monitor your 12-month rolling total, not just your accounting year.

  • Missing the registration deadline: Late registration leads to backdated VAT and penalties.

  • Incorrectly reclaiming VAT: You can only reclaim VAT on business-related expenses with valid invoices.

  • Choosing the wrong VAT scheme: The wrong choice can affect cash flow and increase admin work.

Example Scenario

Alex runs a graphic design business and earns £7,000 per month. By September, his total taxable turnover for the past 12 months reaches £91,000. He must register for VAT immediately, as he has crossed the £90,000 threshold.

If Alex delays registration until November, HMRC can require him to pay VAT on all sales from September onwards, plus possible penalties and interest.

The Role of an Accountant

An accountant can help you:

  • Determine when you need to register for VAT.

  • Choose the best VAT scheme for your business.

  • Reclaim VAT on pre-registration purchases.

  • File accurate VAT returns and manage deadlines.

  • Plan for cash flow and avoid compliance issues.

Professional advice ensures that VAT registration works in your favour rather than becoming an administrative burden.

Conclusion

You must register for VAT when your taxable turnover exceeds £90,000 in any 12-month period or if you expect to exceed it within the next 30 days. Voluntary registration can also offer benefits, particularly for B2B businesses.

Once registered, you must charge VAT on sales, submit regular VAT returns, and keep accurate digital records. Monitoring your turnover and seeking professional advice early can help you register at the right time, avoid penalties, and make the most of available VAT recovery opportunities.