VAT registration – when should you register for VAT?

Your business should register for VAT if your “taxable supplies” over the past 12 months has exceeded the VAT registration threshold.

From April 2020, the VAT registration threshold remains at £85,000. So, if at the end of any given month, the total value of all your taxable supplies over the previous 12 months exceeds £85,000, you should register for VAT.

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

Additionally, you should also register for VAT if you expect your annual turnover to exceed £85,000 in the next 30 days.

It’s easy for new business owners to get things wrong with VAT, so it’s worth reading; 21 Costly VAT Mistakes businesses make on their VAT Returns so you can avoid making these expensive errors.

Seeking permission not to register for VAT

If your business has crossed the VAT registration threshold but you believe this will just be temporary, it is possible to avoid registering.

To request permission not to register, you will need to write to HMRC explaining why you are doing so. You will need to explain why your annual turnover will not exceed the de-registration threshold, which is £83,000 (as of April 2020), and provide documentation to support your case.

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

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 VAT you’ve paid on any business purchases. If your sales comprise zero-rated goods or services and you purchase standard-rated items you would be able to claim a VAT refund from HMRC. Even if you’ve not made any sales, you could still claim the VAT back on your purchases.

If you are registering voluntarily, you might even be able to reclaim some of the VAT you paid when you were setting 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 help give the impression that you run a larger company than is really the case, and this may 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 simpler VAT process, and depending on your business circumstances some financial benefits.

Last updated: 19th April, 2021

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