VAT registration – when should you register for VAT? Try HMRC’s handy estimator

If your business’s “taxable supplies” over the past 12 months have exceeded the VAT registration threshold, you should register for VAT.

As of April 2024, the VAT registration threshold increased from £85,000 to £90,000. So, if at the end of any given month, the total value of all your taxable supplies over the previous 12 months exceeds £90,000, you should register for VAT.

“Taxable supplies” are any goods and services subject to VAT at any rate, including those that are zero-rated. Your taxable supplies will usually be the same as your turnover.

You should also register for VAT if you expect your annual turnover to exceed £90,000 in the next 30 days.

Try HMRC’s VAT Registration Estimator

In July 2024, HMRC launched a handy VAT registration estimator tool that can help you work out the impact of registering on your accounts and those of your customers.

With over 300,000 VAT registrations recorded each year, HMRC states that it created the tool in response to feedback from small businesses.

Business owners often worry about how VAT registration will affect their customers, particularly as they approach the annual threshold.

The tool shows the impact of registering for VAT on your accounts based on your sales and expenses.

You can adjust your inputs, use different VAT rates, and decide whether to absorb or add VAT to your selling prices.

Try out the estimator here!

Seeking permission not to register for VAT

If your business has crossed the VAT registration threshold but you believe this will be temporary, you can avoid registering.

To request permission not to register, you must write to HMRC explaining why you are doing so.

You must explain why your annual turnover will not exceed the de-registration threshold of £88,000 (as of April 2024) and provide documentation to support your case.

If you are successful and HMRC allows you not to register on this occasion, you must inform them if circumstances change and your turnover exceeds the VAT registration threshold again.

The VAT threshold dilemma

Although the VAT registration threshold is designed to ease the burden for smaller businesses, it can sometimes act as a disincentive to grow.

Many sole traders and small business owners deliberately stay just below the £90,000 limit to avoid the extra reporting requirements, software costs, and potential impact on their prices.

Crossing the threshold can mean raising prices to cover the VAT, accepting lower margins, or losing customers who cannot reclaim VAT themselves.

As a result, some businesses cap their turnover or refuse additional work simply to avoid registering.

Recent research has shown that this behaviour is common, highlighting the challenge many small firms face when growing past the threshold. You can read more about the issues this creates in our dedicated guide:

VAT registration threshold – why it holds some businesses back.

Voluntarily registering for VAT may be beneficial

Even if you don’t have a legal requirement to register (i.e. your annual turnover hasn’t exceeded the VAT threshold), you may voluntarily decide to register for VAT.

If you are VAT-registered, you can claim back the VAT you’ve paid on any business purchases.

If your sales comprise zero-rated goods or services and you purchase standard-rated items, you can claim a VAT refund from HMRC. Even if you haven’t made any sales, you can still claim the VAT back on your purchases.

If you register voluntarily, you might even be able to reclaim some of the VAT you paid when you set up your business even though you weren’t VAT-registered at the time.

You should check the rules for reclaiming VAT on purchases made before registration on the HMRC website here.

Another potential benefit of being VAT-registered is that it may give the impression that you run a larger company than is the case, which can enhance your image with clients.

You can read about the VAT registration process in detail at the HMRC site here. You can also register online.

Alongside the “standard” VAT scheme, if you are starting a new business, you should also consider registering for the Flat Rate VAT Scheme.

This can offer a more straightforward VAT process and, depending on your business circumstances, some financial benefits.