The VAT registration threshold is £90,000. Once your business's VAT taxable turnover goes over it, you must register for VAT.
The threshold uses a rolling 12-month figure, which doesn't line up with your tax year or accounting year. So it is easy to cross without noticing. This post explains how to check, when to register and what changes afterwards.
What counts towards the £90,000
VAT taxable turnover is the total value of your sales that are not VAT exempt or outside the scope of VAT. It includes zero-rated sales, such as most food and children's clothes.
It is turnover, before any expenses are taken off.
The two tests
Test 1: the last 12 months. At the end of each month, add up your taxable turnover for the previous 12 months. If it is over £90,000:
register within 30 days of the end of that month
you become VAT registered from the first day of the second month after you went over
For example, if you go over on 15 July, you must register by 30 August. You are VAT registered from 1 September.
If you went over because of a one-off, you can ask HMRC for an exception. You need to show that your taxable turnover in the next 12 months will not go over £88,000. This only applies to Test 1.
Test 2: the next 30 days. If you expect your taxable turnover in the next 30 days alone to be over £90,000, for example because you have won a large contract:
register by the end of that 30-day period
you become VAT registered from the date you realised you would go over
Check Test 1 every month. If your sales are growing, put a reminder in your diary.
Registering voluntarily
You can register for VAT even if your turnover is below £90,000. This can help if:
most of your customers are VAT registered businesses, who can reclaim the VAT you charge
you spend a lot on costs that include VAT, which you could then reclaim
It is less likely to help if most of your customers are the public, because you either raise your prices by the VAT or pay it out of your margin.
What changes once you are registered
You charge VAT on your sales, usually at 20%, and show it on your invoices.
You can reclaim VAT on most business costs.
You file VAT returns, usually every quarter, using software that works with Making Tax Digital.
You pay HMRC the difference between the VAT you charged and the VAT you reclaimed, usually one month and seven days after the end of each quarter.
VAT schemes for small businesses
Some schemes can make VAT simpler:
Flat Rate Scheme: you pay HMRC a fixed percentage of your VAT-inclusive turnover. You still need to keep VAT records, and a higher rate applies if you spend very little on goods.
Cash Accounting Scheme: you pay VAT on a sale once your customer has paid you.
Annual Accounting Scheme: you file one VAT return a year and pay in instalments.
Each scheme has turnover limits and conditions. The right one depends on your business, so talk to us before you choose.
If you register late
You must pay the VAT you should have charged on sales from the date you should have been registered. If you didn't add VAT to your prices, this usually comes out of your own pocket. HMRC can also charge a penalty.
Summary
Check your rolling 12-month turnover every month. If it goes over £90,000, register within 30 days of the end of that month, or ask HMRC for an exception if it was a one-off. Registering late can be expensive, so act as soon as you are close.
If you would like us to check whether you need to register, or handle it for you, book a call or contact us.