If you’re only just starting a new business then you might not need to worry about registering for VAT just yet. This is because VAT registration only becomes compulsory once your taxable turnover meets the registration threshold.
That said, some businesses decide to register for VAT voluntarily before their turnover reaches the threshold, so they can be more tax efficient in the way they reclaim VAT. VAT can get a bit confusing, so in this guide we explain who needs to register for VAT, how and when, and the different types of VAT scheme you can register for.
The VAT registration threshold for 2023/24 is £85,000
What is VAT taxable turnover?
Your VAT taxable turnover is the total amount of everything you sell that is not exempt from VAT.
What is VAT exempt?
Things that typically are exempt from VAT include goods or services considered to be essential, such as:
Some medical procedures
You might sometimes see VAT exempt items referred to as being ‘out of scope’, because they are outside of the scope of VAT rules. You’ll still need to record these transactions in your bookkeeping, even if they’re exempt from VAT.
How do I calculate VAT taxable turnover?
Add together all of your UK sales that aren’t VAT exempt for the previous 12-months. The total will show you your VAT taxable turnover. If it’s approaching or exceeds £85,000, you’ll need to register for VAT.
The figures that you must include also depend on whether you’re a sole trader or a limited company.
Sole traders aren’t legally separate from their business. If you have multiple sole trader businesses, you must add up all of the VAT taxable sales from all of your businesses.
Limited companies are a separate entity in their own right. You only need to include the turnover figures from the company to work out if you need to register for VAT. If you have multiple companies, look at the turnover of each one separately, unless you decide to register them all under one VAT registration number.
We also have a short video which explains how VAT works, that you can watch below.
You might need to register your business for VAT by filling out a VAT1 form and sending it to HMRC in the post. This might be because you’re:
Applying for a registration exception
Registering multiple business units or divisions under different VAT numbers
Joining the Agricultural Flat Rate Scheme
How do I register a partnership for VAT?
The VAT registration process for a partnership is largely the same as it is for any other business, with the extra step of completing a VAT2 form to tell HMRC about each partner in the partnership. A single form can register up to 9 partners at a time, though each partner will need to sign their own section of the form.
What happens once I register for VAT?
Whichever method you use to register, you should receive a VAT registration certificate within 30 working days, but it’s not uncommon for this to take a little longer. It’s useful to plan ahead and think about how VAT registration can affect your pricing. You might decide to add the VAT to your current price (making the purchase more expensive for your customer), or you might decide to include it. There are other variations of this, so we talk about VAT and pricing in a separate article.
What should my effective date of VAT registration be?
The effective VAT registration date is the first day of the second month after you’ve exceeded the threshold. For example, if you reach the VAT registration threshold on 8th August, you must register before the end of September, and the effective date of VAT registration is 1st October.
Can I make a voluntary VAT registration?
Although VAT registration is compulsory once a business hits the registration threshold, some find that making a voluntary registration is beneficial for them. This doesn’t apply to everyone, but most businesses that choose to make an early VAT registration find that it’s more tax efficient. In some industries it can even help you compete for jobs. The process of registering for VAT is still the same.
You should report any changes or updates affecting your VAT registration to HMRC as soon as possible, either online or by post using a VAT484 form. In most cases you must report any changes within 30 days to avoid penalties. Changes to your VAT registration that you might need to report could include:
A change of business name or address
The death or serious illness of a partner or other member of the business
Partnership changes, including a new partner joining or one leaving
If the legal status of a business changes, for instance if a sole trader becomes a limited company
You sell the business to someone else. The new owners might be able to transfer the registration to themselves
The business closes, or otherwise stops trading
Your main business activity changes
Your bank details change. This is so that there are no issues with collecting your VAT payment, or when sending repayments
Can I transfer my VAT registration?
In some cases you might be able to transfer your VAT registration. For instance, if someone leaves a partnership and it becomes a sole trader business, the VAT registration will need transferring to the sole trader. Transferring registration might also be the result of someone selling a business which will continue trading.
The VAT number will stay the same if you transfer your VAT registration.
How do I transfer VAT registration?
You can request a transfer of your VAT registration either online, or by posting a VAT68 form. You’ll also need to send a VAT1 form with the details of the the organisation taking over your VAT registration.
Can I cancel my VAT registration?
Yes, you are able to cancel your VAT registration. In fact, it’s actually a requirement to do so if the business stops trading, or no longer deals with VAT-taxable items. Make sure you cancel within 30 days of becoming ineligible to avoid HMRC penalties!
If your VAT taxable turnover falls below the de-registration threshold of £83,000 in a 12-month rolling period, you can simply request that HMRC cancels your VAT registration.
You can cancel your VAT registration online, or by sending off a VAT7 form through the post.
If your VAT taxable turnover creeps up over the £85,000 threshold again, you will need to re-register the business for VAT.
Online accountancy services
Get a quote and see how much you could be saving!
Get an instant quote
What happens if I don’t register for VAT?
If your VAT taxable turnover is below the registration threshold, you have nothing to worry about. Making a voluntary registration is just that – voluntary (though once you register, you must follow the rules!).
If your VAT taxable turnover from the previous 12 months has exceeded the current threshold however and you don’t register your business for VAT, you’ll likely find yourself in a spot of bother with HMRC. Failing to register for VAT when you’re supposed to is highly likely to see you end up facing a penalty.
What is the penalty for failing to register for VAT?
The penalty amount depends on how much VAT you owe, and how late your registration is. It will be somewhere between 5-15% of the VAT you owe, with a minimum penalty of £50.
The VAT that you owe will also be added on top of the penalty amount, even if no VAT was charged to the customer at the time of sale.
If a customer is VAT registered, you’ll be able to raise a VAT-only invoice and collect payment from them retrospectively. If a customer is not VAT registered, then this won’t be an option but the business will still need to pay HMRC the VAT it owes.
In some instances, a business might also be charged with a failure to notify penalty, or even a civil evasion penalty on top of that. Ouch!