The simple answer to this is no; you don’t need to be a limited company to be able to register for VAT. The more comprehensive response is that HMRC doesn’t differentiate between limited companies and sole traders when it comes to VAT registration.
Instead, HMRC uses a rolling turnover threshold as the marker for when any business needs to start paying VAT. Rolling turnover just means that it takes into account the turnover within a rolling 12-month period, rather than a fixed time period such as a financial or calendar year.
Starting up a business brings with it a whole whirlwind of things to think about, lingo that makes no sense, and payments you didn’t realise you’d need to fork out for (as well as ways of relieving some of these costs). Value Added Tax (VAT) is one of those headache-inducing realities that you might well need to deal with at some point in your entrepreneurial career.
Value Added Tax (VAT), like the name suggests, is a tax added to the value of most goods and services in the UK, though there are some exemptions. It’s not an exhaustive list, and HMRC go into more detail on their website, but VAT-exempt items might include:
Education and training
Any funds raised by charities
Subscription to organisation membership programmes
Insurance, finance and credit
Our video guide to VAT explains things in a bit more detail below.
What is the VAT registration threshold?
The current threshold for VAT registration sits at £85,000. So, if a business starts making a VAT-taxable turnover of £85,000 or more within any 12-month period, then they will need to register to pay VAT. It’s worth noting that HMRC defines VAT-taxable turnover as: “The total value of everything you sell that is not exempt from VAT.”
If you think that your taxable turnover could reach the threshold within a rolling 30-day period, then you must register for VAT immediately.
Comprehensive VAT return service
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What if my business is below the VAT registration threshold?
If your rolling turnover is less than £85,000 then you aren’t required to register for VAT. However, there are some businesses which opt for voluntary VAT registration for a number of reasons including:
Appearing more professional to customers, partners and investors