How to Register for VAT

Looking to register for VAT? This guide breaks down everything you need to know in simple terms, helping you navigate the process with confidence.

Learn whether you need to register, how to do it step-by-step, and the advantages it can bring. Plus, we’ll share tips to avoid mistakes and streamline compliance.

By the end, you’ll have the clarity to make informed decisions and take the hassle out of VAT registration. Let’s get started.

Who Needs to Register for VAT?

Mandatory Registration

If your VAT taxable turnover exceeds £90,000 (the current VAT registration threshold) in any rolling 12-month period, you must register for VAT.

Additionally, you must register if you expect your turnover to exceed the threshold within the next 30 days.

Example: If your turnover has been £83,000 for the past 11 months and you receive a £10,000 order this month, you must register for VAT

Voluntary VAT Registration

Even if your turnover is below the £90,000 threshold, you can opt for voluntary VAT registration. This allows you to reclaim VAT on purchases and can enhance your business’s credibility, particularly when dealing with larger clients or government contracts. Other benefits include improved cash flow management and the ability to issue VAT invoices.

Types of Businesses That Register for VAT

VAT registration applies to:

Sole Traders: Registration can allow you to reclaim VAT on purchases, even if your turnover is below the £90,000 threshold if you opt for voluntary registration.
Limited Companies: Often register due to exceeding the threshold or to access VAT schemes. They may also choose to register voluntarily for similar benefits.
Partnerships and E-commerce Sellers: Particularly those dealing with international clients may need to register due to specific compliance requirements related to cross-border transactions.

Learn more about the VAT rules for imported goods from the EU to the UK.

Examples of VAT Registration Scenarios

Scenario 1: A Growing E-commerce Business

Background: Sarah runs an online store selling handmade crafts. Over the past year, her sales have steadily increased, and she’s currently at £85,000.

Situation: Sarah receives a large order from a retailer worth £15,000.

Action: Since her total sales will exceed the £90,000 threshold with this order, she must register for VAT within 30 days to comply with regulations. This registration will allow her to reclaim VAT on her materials and shipping costs.

Scenario 2: A Sole Trader Opting for Voluntary Registration

Background: John is a freelance graphic designer whose annual turnover is around £70,000.

Situation: He frequently works with larger clients who expect VAT invoices.

Action: John decides to voluntarily register for VAT despite being below the threshold. This choice enhances his credibility and allows him to reclaim VAT on software and equipment purchases, improving his cash flow.

How to Register for VAT: Step-by-Step Guide

Step 1: Check Your Eligibility

Start by assessing whether your VAT taxable turnover exceeds the VAT registration threshold (£90,000) in any rolling 12-month period. If your turnover is below this threshold, you can still opt for voluntary registration to reclaim VAT on purchases and enhance your business’s credibility.

Step 2: Gather Your Documentation

You’ll need the following:

VAT1 form (if registering by post).
Bank account details.
Company registration number (for a limited company).
Personal details for a sole trader (such as your National Insurance number).
Records of taxable turnover for the past 12 months.

Step 3: Registering for VAT Online

The easiest way to register is through the GOV.UK portal.

Create a Government Gateway account if you don’t have one.
Complete the application form with your business details, turnover, and reasons for registration.
Submit your application.

Step 4: Receive Your VAT Registration Numbers

You’ll typically receive a unique VAT registration number within 40 working days, although processing times can vary. Use this VAT number on invoices and correspondence with HMRC.

Step 5: Submit Your VAT Returns

After registration, you must regularly submit your VAT returns online through your VAT online account. These returns detail:

VAT collected on sales (output VAT).
VAT paid on purchases (input VAT).

Ensure compliance with Making Tax Digital (MTD) regulations by using HMRC-approved software for submissions.

Common VAT Registration Schemes

Standard Scheme

This is the default scheme where businesses calculate the difference between VAT charged on sales (output VAT) and VAT paid on purchases (input VAT). This method allows businesses to reclaim input VAT on their purchases.

Flat Rate Scheme

Designed for small businesses, the Flat Rate VAT Scheme simplifies VAT reporting by allowing businesses to pay a fixed percentage of their turnover to HMRC rather than tracking individual VAT amounts.

Notes about this scheme:

Businesses cannot reclaim VAT on purchases, except for certain capital assets costing over £2,000.
To qualify, your business must have an estimated taxable turnover of £150,000 or less (excluding VAT) and must apply to join the scheme.
The flat rate percentage varies by industry, and businesses receive a 1% discount in their first year of registration.
Businesses classified as “limited-cost traders,” which spend very little on goods, must pay a higher flat rate of 16.5%.

Why Should You Register for VAT?

Benefits of VAT Registration

Reclaim VAT on Purchases: VAT-registered businesses can recover VAT paid on business expenses such as equipment, materials, and services, leading to significant savings.
Improved Credibility: Clients often see VAT registration as a sign of professionalism, making your business more appealing, especially in B2B transactions or when dealing with larger clients and government contracts.
Simplified Accounting with VAT Schemes: Schemes like the Flat Rate Scheme simplify accounting by allowing eligible businesses to pay a fixed percentage of turnover instead of tracking individual VAT accounts. Additionally, the Cash Accounting Scheme helps manage cash flow by aligning VAT payments with actual cash received.

Challenges of VAT Registration

Administrative Burden: You’ll need to maintain detailed VAT records, issue VAT invoices, and submit VAT returns to HMRC, which can increase administrative workload.
Cash Flow Management: VAT payments may need to be made to HMRC before clients pay you, creating temporary cash flow gaps that can strain financial resources.
Compliance Requirements: Filing accurate returns via an online VAT account is critical to avoid penalties. Businesses must typically submit returns quarterly or annually and keep records for at least six years.

VAT Registration FAQs

How do I register for VAT?

Register online via the GOV.UK website or use a VAT1 form for postal applications.

How do you become VAT registered?

Create an online VAT account, complete the registration process by filling out the necessary forms, and await confirmation from HMRC.

How do I become VAT registered if I exceed the threshold?

Once you expect your taxable turnover to exceed £90,000, you must register through the GOV.UK portal. You have 30 days to notify HMRC after exceeding this threshold.

How do I become VAT registered voluntarily?

Follow the same registration process as mandatory registration, indicating in your application that you are opting in voluntarily to reclaim VAT on purchases.

How to get VAT registered quickly?

Use the GOV.UK online service, which is typically faster than postal applications. Ensure all information provided is complete and accurate to avoid delays.

What is a VAT Return to HMRC?

A VAT return is a summary submitted to HMRC that details the amount of VAT owed or reclaimable by a business over a specific period. Businesses typically submit VAT returns quarterly, although larger businesses may submit them monthly, and some smaller businesses may choose to file annually. Accurate reporting is critical for compliance with HMRC regulations; errors in your VAT return can lead to significant penalties.

Ensure that all figures in your VAT returns are correct, including total sales, purchases, output VAT collected, and input VAT reclaimable. Inaccuracies can result in financial penalties and interest charges on late payments, making diligent record-keeping essential for avoiding costly mistakes.

What is VAT Taxable Turnover?

VAT taxable turnover refers to the total sales value of goods and services made by a business that is not exempt from VAT. This includes standard-rated and reduced-rate sales but excludes items like salaries or sales of exempt goods (e.g., financial services, insurance, and certain property transactions).

It’s crucial for businesses to understand what counts as taxable turnover when assessing their obligation to register for VAT, as any income not classified as taxable (such as exempt or outside-the-scope supplies) does not contribute towards the registration threshold.

How J. Dauman & Co Can Help

Expert Guidance

We simplify how to register as VAT registered, ensuring you avoid mistakes during the process.
Assistance with completing forms, setting up your VAT online account, and managing VAT records.

Ongoing Compliance Support

Help you submit VAT returns accurately and on time.
Tailored advice for small businesses, sole traders, and limited companies.
Guidance on VAT schemes to suit your needs.

Making VAT Simple

Navigating VAT doesn’t have to be overwhelming. Whether you’re a small business registering voluntarily or a growing company exceeding the threshold, J. Dauman & Co’s VAT services are here to help.