How to register for VAT: a step-by-step guide

VAT – or Value Added Tax – is a tax in the United Kingdom on most goods and services.

As your business grows, you may reach the point where you need to register for VAT with HMRC, once you meet the VAT threshold.

You will get a VAT number and will need to submit VAT returns. You can’t register for VAT if you only sell VAT-exempt goods and services.

When you are VAT registered, you will need to:

• Charge customers the right amount of VAT on invoices
• Submit quarterly VAT returns
• Keep digital records
• Pay any VAT due to HMRC

• Standard Rate (currently 20%) – this is the standard rate for most goods and services in the UK
• Reduced Rate (currently 5%) - Some specific goods and services, eg children’s car seats and home energy
• Zero Rate (0%) - reserved for essential items such as children’s clothing, food and books.
• Items may also be exempt or outside the scope of VAT.

VAT isn’t just about charging consumers; it also allows businesses who are VAT-registered to reclaim VAT on their costs from HMRC.

If your business is going to exceed the VAT threshold, you must register for VAT and charge the appropriate VAT rate to your customers when providing them with goods or services. If you are unsure about when you need to register for VAT, get in touch with us today.

The VAT threshold from 1st April 2024 is £90,000 – this is your UK taxable turnover in either the past 12 months or in the next 30-day period.

Taxable (sometimes called VATable) turnover means sales that are subject to either the standard, reduced or zero rate of UK VAT.

Income that is exempt from UK VAT or has a place of supply outside of the UK does not count towards the UK VAT registration turnover threshold.

Some businesses must register for VAT, some are not allowed to, and others can choose to register voluntarily.

• Who must register for VAT: Businesses with an annual taxable turnover of more than £90,000
• Who is not allowed to register for VAT: Businesses that sell only goods and services that are VAT-exempt
• Who can choose to register for VAT: Businesses with an annual taxable turnover of less than £90,000

If you pass the VAT Registration Threshold and you’re not an exempt business, it is a legal requirement to register for VAT.

• your total taxable turnover for the last 12 months goes over £90,000 (the  VAT  threshold)

• you expect your taxable turnover to go over £90,000 in the next 30 days

If you exceeded the VAT threshold based on your last 12 months of sales, then your date of registration will be 1 month and 1 day after the month-end you exceeded the threshold.

For example, if, in the 12 months to 31st August, your UK taxable sales exceeded £90,000, you must notify HMRC by 30 September, and your effective date of registration will be 1st October.

If you think your UK taxable turnover will be more than £90,000 in the next 30-day period alone then you must notify HMRC of this within 30 days and you will be VAT registered from the date this expectation arose.

For example if, on 12th August, you take an order for £90,000 of UK-held goods, to be delivered in 3 weeks’ time, you must notify HMRC by 11th September, and your effective date of registration will be 12th August.

You may face a penalty if you notify HMRC late that you are required to register for VAT, and HMRC will back-date the registration date to when you went over the threshold.

This means you will owe HMRC any VAT on your income between being required to be registered and HMRC actually registering you.

At Bright Beany Accounting we can handle your VAT registration on your behalf – get in touch today to discuss. We will handle the registration process with HMRC, get your online VAT account set up, and connect your accounting software to HMRC via Making Tax Digital.

Your VAT Registration Certificate should arrive within 30 working days or registering online, and your registration date is your ‘effective date of registration’, so you’ll have to pay HMRC any VAT due on sales income from this date.

After VAT registration you need to:

• add VAT to your sales invoices – this may mean increasing prices for customer
• issue VAT invoices to your customers
• file quarterly VAT returns and pay any VAT due to HMRC
• keep digital VAT records and a VAT account

Your due dates will depend on when you registered for VAT and what accounting scheme you use (read on to find out more about the different schemes!).

Most businesses are required to submit their returns quarterly, but some can use the annual accounting scheme as well.

Your due dates will depend on when you registered for VAT and what accounting scheme you use (read on to find out more about the different schemes!).

Most businesses are required to submit their returns quarterly, but some can use the annual accounting scheme as well.

If you have a VAT bill, you generally get one month and seven days to pay this to HMRC.

You can do this via internet banking, debit card, or credit card – but the easiest way is to set up a direct debit. This allows HMRC to take the VAT you owe directly from your business bank account on the due date.

If you miss your deadline, you may face penalties.

There are various VAT Schemes you can use. The VAT accounting scheme is how we calculate how much you will owe to or are due from HMRC

• Standard VAT accounting: This is the most common scheme, where you record the VAT collected on each sales invoice and the VAT paid on each purchase, then submit a VAT return to HMRC every quarter.
• Annual VAT accounting: Some businesses can submit a VAT return once a year, however they must still pay HMRC quarterly. Those quarterly payments are based on your last return, or an estimate over the year.
• The flat rate scheme: Certain smaller businesses can register for the flat-rate scheme, and simply pay a percentage of their turnover as VAT over to HMRC. You must still keep valid VAT records and submit via Making Tax Digital compliant software. Bright Beany Accounting can help you decide if this makes sense for your business. You can see the flat rates for specific industries here.
• Cash accounting scheme: Under cash basis accounting, you are assumed to have collected or paid VAT when the money changes hands. Under all the other schemes, you are assumed to have collected or paid VAT as soon as an invoice is raised in your accounting system. This scheme may be better for business with longer payment terms with customers, to manage your cashflow.

You may want to consider voluntarily registering for VAT – however we would not recommend going down this route without a full VAT review on your existing business, to see if this would be advantageous for you. Speak to us today to see how we can help.

Advantages

• If you sell to VAT registered businesses already, they can reclaim the VAT from HMRC. Your selling price doesn’t change for them, and you will be able to recover the VAT on your purchases.
• Maintaining up to date and digital records will provide better management information for running your business.
• You can claim VAT on some items that you purchased prior to the date of VAT registration. Talk to us about what you can reclaim in this situation.
• If you are in a VAT reclaim situation, then you will definitely be better off!
• Small businesses can appear more credible by being VAT-registered and displaying your VAT number on invoices and letterheads. Some larger businesses only work with other VAT-registered businesses to ensure both parties can reclaim the VAT on any invoices.

Disadvantages

• If your customers are not VAT registered themselves then you will immediately appear 20% more expensive when you add VAT onto your sales invoices.
• The other option you have is to not put up your prices, and swallow the cost of the VAT due to HMRC.
• There can be increased admin and bookkeeping costs once you have registered for VAT - although this needs to be done for your annual accounts anyway, and with our digital bookkeeping service, we can complete your VAT return in an instant at the end of each quarter.

Being VAT registered below the threshold is optional, but you must cancel your registration within 30 days if you are no longer eligible.

The VAT deregistration threshold is £88,000 or less and you can cancel your registration through your online VAT account. When you de-register, you may have to pay VAT to HMRC on stocks and assets the business still has on hand.

Making Tax Digital (MTD) is part of the governments long term strategy to require businesses and individual to keep digital records. For your VAT return, this means you must submit your VAT returns using software that is recognised by HMRC – at Bright Beany Accounting we use Xero. This means that you can no longer submit your VAT returns manually.

The use of MTD software became mandatory for VAT periods starting on or after 1st April 2022.

Many business owners find it far easier and quicker to calculate and submit returns using online MTD software. It is important that you comply with Making Tax Digital as HMRC can visit your business to inspect your record keeping and charge you a penalty if your records are not in order.

VAT-registered businesses must:

• keep records of sales and purchases
• keep a separate summary of VAT in your accounting software
• issue correct VAT invoices to customers

The records must be:

• kept for at least 6 years
• accurate, complete, and readable

You must have compatible software before you sign up, and you will also need:

• Your business email address
• Government Gateway user ID and password – if you do not have a user ID, you can create one when you use the service
• your VAT registration number