It’s super exciting when your business grows to the point where it’s ready to register for VAT. And the great news is that VAT registration in the UK is a relatively straightforward process! It’s all about understanding when you need – or might want – to register.
There have been a few changes to VAT requirements for businesses operating in the UK in 2024. For example, the government have recently outlined new obligations for online marketplaces including Vinted, AirBnB, eBay and so on, to report details of transactions to HMRC. This means that digital platforms such as these are now required to routinely report the income that sellers are getting through their site.
Whilst this change is more likely to impact personal taxes, in some cases it could see individuals exceeding the VAT registration threshold and being liable to register for VAT. So it’s vital to make sure you’re up to speed with what you need to record and submit!
This blog post will explain exactly how VAT works in the UK, the different rates of VAT, and who needs to register for VAT. It will then take you step-by-step through the process of registering for VAT in 2024, so that you can make sure you’re adhering to all business regulations in the UK. And it’s full of resources for you to use, too!
What is VAT?
Value Added Tax (VAT) is a consumption tax added to the value of goods and services at each stage of the production and distribution chain in the UK. It’s a cost that is ultimately borne by the final consumer, so it’s a key revenue source for the UK government. But what does registering for VAT mean?
Businesses that are VAT registered in the UK are required to apply VAT to the goods and services they provide, and subsequently, remit the collected VAT to HM Revenue & Customs (HMRC). Moreover, they have the opportunity to recover any VAT incurred on their business-related expenses.
Companies registered VAT in the UK are subject to the three different rates of VAT in the United Kingdom:
Standard Rate: The standard rate of VAT in the UK is 20%, and this is applicable to most goods and services.
Reduced Rate: This is a lower rate of tax in the UK. It’s 5%, and it applies to things like children’s car seats, fuel and power for domestic use, energy-saving materials installed for domestic use, mobility aids for the elderly.
Zero-Rate: Services subject to zero-rated tax are not completely exempt from VAT, but VAT is applied at a rate of zero. In the UK, 0% tax applies to most food, and products including books and newspapers, children’s clothes and shoes, and motorcycle helmets.
Who needs to register for VAT?
There are a number of different scenarios which require registration for VAT. So when do you need to register for VAT in the UK?
In the UK in 2023, the VAT limit is currently £85000. You need to register for VAT in the UK if your business’s annual taxable sales are over that limit – or if they’re going to hit that limit within the next 30 days. This is called compulsory registration.
And don’t get caught out – it’s crucial to understand that you will need to register for VAT when your taxable turnover exceeds £85,000 in ANY rolling 12-month period – not in an accounting period. So don’t just look at April to April! If you’ve hit £85,000 in the last year, you need to register.
It’s also really important to note that late registration for VAT incurs penalties. So if your business is about to hit the VAT limit, it’s vital that you register for VAT with HMRC! Penalties are calculated based on how much VAT is due as well as how late you were registering. So registering late can be very expensive!
What is voluntary VAT registration?
In certain situations, you might consider registering for VAT before your business’s annual turnover hits the registration for VAT threshold. This is called voluntary registration.
But why register for VAT if under the threshold? Many business owners choose to register for VAT voluntarily because being VAT registered enables your business to reclaim the VAT on its expenses. So it’s a good way to boost your cashflow!
What happens when you register for VAT?
Once you’ve registered your business for VAT, you’ll need to start keeping careful accounting records ready to file your VAT returns for each quarter.
It’s important to note that when you register for VAT, you automatically register for VAT Making Tax Digital (MTD), which is the UK government scheme that requires all VAT registered businesses to keep their accounting records on cloud-based software such as Xero.
You’ll need to submit your VAT return one calendar month and seven days after the end of your VAT quarter. So for example, if your VAT quarter ends on the 31st of August, the deadline for filing the return and settling payments with HMRC is the 7th of October. We’d suggest setting up a direct debit to help you pay your VAT on time!
Can you register for VAT as a sole trader?
Yes, you can register for VAT as a self-employed individual or sole trader – and it’s really important to note that compulsory registration still applies. That means that you’ll need to complete registration for a VAT number if your turnover exceeds £80,000 in any 12-month period.
You can also choose to register for VAT as a sole trader. This can be useful as it means you don’t have to worry about hitting the threshold. Lots of sole traders are one-person businesses, so it can be tricky to stay on top of accounting. Registering for VAT is one less thing to worry about if you’ve done it already! When you register for VAT, you can also reclaim input VAT on purchases, which is always useful.
VAT registration for small business is also subject to exactly the same conditions. This is because the registration for VAT threshold applies to all companies or sole traders, regardless of their business structure. And the requirements for VAT registration for charities are the same, too – though it’s worth checking what VAT rate applies to your charity’s activities.
How to Register for VAT in the UK
To register for a VAT number, what you’ll need depends on what kind of company structure you use.
The information you’ll need to register for VAT depends on the type of your business. If you’re registering as a limited company, you’ll need:
- Your company registration number
- Your business’s bank account details
- Your Unique Taxpayer Reference (UTR)
- Details of your annual turnover
You may also need information about your Self Assessment, your Corporation Tax and Pay As You Earn (PAYE).
If you’re registering as an individual or as a partnership, you’ll need:
- Your National Insurance (NI) number
- ID, such as your passport or driving licence
- Your bank account details
- Your Unique Taxpayer Reference (UTR), if you have one
- Details of your annual turnover
You’ll also need information about your Self Assessment return, your payslips and your P60.
Once you’ve got all the information required, you’ll be able to follow the step-by-step process of registering for VAT on the UK government website here, which involves filling out a simple register for VAT form. And if you’re concerned about VAT registration cost, don’t worry. It’s free to register for VAT!
How to Deregister for VAT in the UK
VAT deregistration is crucial if you stop being eligible for VAT; for example, if you stop trading or making VAT taxable supplies, or you join a VAT group. Group registration for VAT is where two or more companies or limited liability partnerships, known as ‘bodies corporate’ register as a single taxable person or VAT group. You can do this if each body has its principal or registered office in the UK and they are under common control; for example, if one or more company is a subsidiary of a parent company.
It’s really important that you cancel your VAT registration within 30 days if you stop being eligible, because if you miss this deadline you could be charged a penalty. Also, the UK government states that you can ask HM Revenue and Customs (HMRC) to cancel your registration if your VAT taxable turnover falls below £83,000.
You can deregister for VAT here.
Frequently Asked Questions
Can I register for VAT before I start trading?
A question we often get asked is “can I register for VAT with no turnover?” The UK government states that you can apply to register before you start to make taxable supplies, distance sales or acquisitions – but you can only register if you’re already in business.
HMRC defines being in business as a continuing activity carried on with the intention of making supplies for a consideration. So if you’re just selling in a purely private capacity; for example, selling your personal belongings, then you can’t register for VAT. Though you should make sure you’re up to speed with the new regulations regarding selling on platforms such Vinted and eBay!
It’s worth bearing in mind that if you register for VAT with no turnover, you may be asked to show HMRC that you plan to make taxable supplies.
You can read more about registering for VAT before you start trading here.
Who can register for VAT?
In the UK, you’re legally required to register for VAT if your total VAT taxable turnover in the last 12 months exceeded the VAT threshold, which is currently £85,000. You’ll also need to register if you anticipate that your turnover will surpass £85,000 in the next 30 days.
You’ll also need to register for VAT regardless of your VAT taxable turnover if all the following apply:
- Your business is based outside the UK.
- You, as an individual, are located outside the UK.
- Your business supplies goods or services to the UK (or you expect to do so in the next 30 days).
You can also choose to register for VAT if your taxable turnover is below the threshold. Lots of business owners choose to register for VAT voluntarily because being VAT registered allows your business to reclaim the VAT on its expenses.
You cannot register for VAT if your business sells only VAT-exempt goods and services.
How do I register for VAT online?
Registering for VAT online is simple. You just need to grab all the information you need (listed earlier in this article!), and head to the UK government website’s VAT registration page.
Registering for VAT in the UK is a straightforward process, and there’s no registration fee. You just need to work out when you’re legally required to register, and make an informed decision on whether to register voluntarily. You can do this by assessing your turnover and your cashflow.
And don’t forget, you can set up a Virtual Office at Impact Brixton if you want a professional office address to use for all your business needs – without any of the hassle or overheads associated with renting a physical office space!