Check if you need to register for VAT

You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period. This is a legal requirement, not optional. Late registration results in penalties and back-dated VAT liability.

Work out:

• Whether you need to register now (mandatory)
• Whether you might need to register soon (monitoring)
• Whether voluntary registration makes sense for your business

The two VAT registration tests

You must register for VAT if either of these applies:

Historic test (looking back)

At the end of any month, your taxable turnover in the last 12 months exceeded £90,000.

Deadline - Register within 30 days of the end of that month.

Registration effective from - The first day of the second month after exceeding the threshold.

Future test (looking forward)

At any time, you expect to exceed £90,000 in the next 30 days alone.

Deadline - Register by the end of that 30-day period.

Registration effective from - The start of that 30-day period (the date you realised you would go over), not the date your turnover goes over the threshold.

What counts as taxable turnover

Your taxable turnover includes all sales of goods and services that are VAT-taxable. This includes three categories:

• Standard-rated (20%) - Most goods and services
• Reduced-rated (5%) - Domestic fuel, children's car seats, some energy-saving materials
• Zero-rated (0%) - Most food, children's clothes, books, newspapers, exports

Important - Zero-rated sales still count towards the threshold, even though the VAT rate is 0%.

What does NOT count

Exclude these from your taxable turnover calculation:

• VAT-exempt sales - Insurance, finance/credit, education, health services, betting/gambling, burial/cremation services
• Sales outside the UK - Goods sold abroad (though these may trigger distance selling obligations)
• Non-business income - Grants, donations (unless for specific goods/services), hobby income
• Sales of capital assets - Selling business equipment you've used (one-off sales, not if selling is part of your business)

Mixed supplies - If you make both taxable and exempt sales, only include the taxable portion. Seek advice on partial exemption if this applies to you.

How to calculate your taxable turnover

Use the rolling 12-month method:

Example: Rolling 12-month calculation

In this example, the business exceeded £90,000 at the end of April 2025. They must register by 30 May 2025, and VAT registration takes effect from 1 June 2025.

When you must register

If you've exceeded the threshold, you must:

1. Register within 30 days of the end of the month you exceeded the threshold
2. Start charging VAT from the effective registration date (first day of second month after exceeding)
3. Keep VAT records using Making Tax Digital-compatible software

You cannot show VAT on your invoices until you get your VAT registration number, but you still owe HMRC VAT on sales from your effective date. You can increase your prices to cover it and tell your customers why, then reissue the invoices showing VAT once your number arrives.

What if you're approaching the threshold?

If your taxable turnover is between £70,000 and £90,000, you should:

• Monitor monthly - Calculate your rolling 12-month turnover at the end of each month
• Plan ahead - Understand when you're likely to cross the threshold
• Consider voluntary registration - Registering early may be beneficial
• Set up systems - Choose accounting software and understand VAT record-keeping before you need to

Do not:

• Artificially split your business to stay under the threshold (VAT avoidance)
• Delay invoicing to postpone registration (HMRC considers when services are supplied, not when invoiced)
• Ignore the forward test if you have large contracts coming

Taking over a business or registering as a group

If you take over a VAT-registered business, you must register if the combined taxable turnover of the business you take over and your existing business is over the threshold.

No VAT is charged when you buy a business as a going concern, if the assets are sold as part of the business, you will use them to carry on the same kind of business, and you are or become VAT-registered where the seller is. This is called a transfer of a going concern (TOGC). Land and buildings the seller has opted to tax have extra conditions. With the seller's agreement, you can apply to keep their VAT registration number through HMRC online services or form VAT68, but you then take on their VAT liabilities.

Two or more companies or limited liability partnerships under common control, each established in the UK, can register together as a VAT group. The group sends one VAT return through a representative member, supplies between members are normally disregarded for VAT, and every member is jointly and severally liable for the group's VAT debts.

Voluntary registration

You can register for VAT even if your turnover is below £90,000. This is called voluntary registration and can make business sense in certain situations.

When voluntary registration makes sense

Consider registering voluntarily if:

• You sell mainly to VAT-registered businesses (B2B) - they can reclaim the VAT you charge
• You have significant business expenses with VAT - you can reclaim this as input VAT
• You export goods - exports are zero-rated so you charge no VAT but can reclaim input VAT
• You're approaching the threshold anyway - get systems in place early
• You want to appear more established to potential clients

Avoid voluntary registration if:

• You sell mainly to consumers (B2C) - they cannot reclaim VAT, so your prices effectively increase by 20%
• You have minimal VAT-able expenses - the administrative burden outweighs the benefit
• Your competitors are not VAT-registered - you may be at a pricing disadvantage

Penalties for late registration

If you fail to register on time, HMRC will:

• Back-date your registration - You owe VAT from when you should have registered, even if you did not charge customers
• Charge penalties - Based on the VAT due during the period of non-registration:
  • Non-deliberate: 0-30% of VAT due
  • Deliberate: 20-70% of VAT due
  • Deliberate and concealed: 30-100% of VAT due
• Charge interest - On unpaid VAT from when it should have been paid

Minimum penalty - £50

If you realise you should have registered earlier, notify HMRC promptly. Voluntary disclosure typically results in lower penalties.

What happens after registration

Once registered, you must:

• Charge VAT on taxable sales at the appropriate rate
• Issue VAT invoices showing VAT separately
• Keep digital records using Making Tax Digital-compatible software
• Submit VAT returns quarterly (usually) via your software
• Pay VAT due by 1 month and 7 days after the VAT period ends