When Do I Need To Register For VAT?

If you run a business in the UK, it can be challenging to understand when to register for value-added tax (VAT). There are certain circumstances under which businesses are legally obligated to register for VAT. 

Her Majesty’s Revenue and Customs (HMRC) requires that businesses with an annual taxable turnover (sales falling inside the scope of UK VAT) over a certain value threshold be VAT registered. In this post, we’re going to take a look at what the requirements are for businesses to register for VAT in the UK and what you need to do to get your business registered.

What to Consider When Registering for VAT in the UK

If you are operating a business in the UK, you need to ask yourself some questions when considering registering for VAT in the UK. Some of the things to look at to figure out whether or not you should register for VAT include: 

• Your business’s annual taxable turnover. If your company’s annual taxable turnover (sales falling inside the scope of UK VAT) over the last year exceeds £85,000, this means that you are legally required to register for VAT in the UK. If your taxable turnover has exceeded this, it’s a legal requirement for you to register for VAT at most 30 days after the last day of the month you reached the £85,000 taxable turnover threshold. 
• Consider your customers. When you register for VAT keep in mind that you will need to start charging your customers VAT. This means they will pay you more. Some companies think registering for VAT before they reach £85,000 in taxable turnover is a good idea. However, it’s important to consider your customers, especially if they’re consumers who can’t claim back the VAT.
• Taxable sales. Before you register for VAT, you need to make sure the product or service you’re selling is taxable. There is a list of products and services which are not taxable and therefore make it unnecessary for your business to register for VAT.  For example, sales falling outside the scope of UK VAT does not count towards the threshold.
• Where you are based. If you or your business are based outside of the UK, you may need to register for VAT if you plan to supply goods to the UK. This depends on a number of factors since Brexit.

How Do I Know I Need to Register for VAT? 

If you have met any of the criteria mentioned above, it is likely that you may need to register for VAT in the UK. To summarise, it’s mandatory to register your business for VAT if your annual taxable turnover (sales falling inside the scope of UK VAT) has reached £85,000 in the previous 12 months, or if you predict this threshold will be reached in the next 30 days.

If you or your company are based outside of the UK but you supply goods to customers inside of the UK, you may need to register for VAT.

If you think that any of these circumstances apply to you, it means you will likely need to register for VAT. If you are unsure, consider contacting a professional for help in establishing the best way forward. 

What If I Don’t Register for VAT? 

If you do not register your company for VAT in time, it may end up costing you a lot more money than if you are registered. This is another reason many businesses register voluntarily. Failure to register may result in a penalty from the HMRC, which is effectively a fine for not reporting accurately. You will also be required to pay everything owed to the HMRC from the date you should have registered. This is often a large sum of money and may cause cash flow problems within your business. 

How to Register for VAT

The registration process is in the form of an application which the HMRC has to accept before assigning you a VAT registered certificate and a VAT registration number. 

The application requests information about the business and the goods and services it provides, and will also ask for information about your company’s turnover and financial reporting.

What Are the Benefits of Registering for VAT? 

Having your business registered for VAT can be beneficial. When you register for VAT you will be able to claim back input VAT on your business costs.  You can also claim VAT on retrospective costs prior to registration.  Different timeframes apply to services and goods purchased.

Your company can become eligible for VAT refunds from the HMRC. This typically helps with cash flow for small businesses which is why some choose to register before they meet the compulsory VAT registration threshold, especially when costs exceed sales, typical for a start-up.

Being VAT registered also gives your company a professional edge, as customers will see you are VAT registered. This is especially helpful when your business provides a service.