VAT registration becomes compulsory for a business once its taxable turnover meets the registration threshold in a 12-month period, although some businesses find it useful to register for VAT before that point. With so many rules flying about, VAT can be pretty 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.

When does a business need to register for VAT?

You must register your business for VAT once your VAT taxable business turnover reaches the VAT registration threshold in any 12-month period.

What is VAT taxable turnover?

Your VAT taxable turnover is the total amount of everything you sell that is not exempt from VAT.

What does VAT exempt mean?

Goods or services which are considered to be essential are normally exempt from VAT, such as:

• Insurance
• Investments
• Some medical procedures
• Training

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 £90,000, you’ll need to register for VAT.

When you work out VAT taxable turnover, you should also include any zero-rated items (sales which include items rated at 0% VAT). Zero rated VAT is different to being VAT exempt, so you’ll still need to include these in your VAT records. We explain the difference between zero rate and exempt in more detail in our VAT terminology article!

• 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. Just be wary of the rules about ‘artificially separating’ a business for VAT reasons.

We also have a short video which explains how VAT works, that you can watch below.
 

How to register for VAT

The VAT registration process is pretty uncomplicated, though the process might be slightly different depending on the VAT scheme that you’re applying for.

Register for VAT online

You can sign up for VAT online. Before registering online, make sure you have the following information to hand:

• Your Government Gateway login details
• Business registration details
• Business bank account details
• National Insurance number or unique taxpayer reference

Registering for VAT by post

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?

You should receive a VAT registration certificate within 30 working days whichever method you use to register, 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 in your pricing (which means smaller profit margins).

Take note of your ‘effective date of registration’ as this will be the date from which you’ll be due to pay VAT to HMRC. In some cases, you might also be able to reclaim VAT you paid before your registration started.
 

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 register for VAT before the threshold?

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 choosing to make an early VAT registration find 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.

How do I change my VAT registration?

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 registered 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.

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 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 £88,000 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.

It usually takes around 3 weeks for your cancellation date to be confirmed but be aware – you must still submit a VAT Return for the period up to, and including, this date. Once deregistered, you are still able to reclaim VAT incurred before the cancellation using a VAT427 form.

If your VAT taxable turnover creeps up over the £90,000 threshold again, you will need to re-register the business for VAT.
 

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 and you don’t register your business for VAT, you’re likely to find yourself in a spot of bother with HMRC. Failing to register for VAT when you’re supposed to will normally result in 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!

 
Learn more about our online accounting services for VAT, talk to one of the team on 020 3355 4047, or get an instant online quote.