Registering for VAT is a fairly straightforward process, and there aren’t any registration fees or charges to worry about. We’ll go over who needs to become VAT registered, and how to sign up.
When does a business need to register for VAT?
Not all businesses need to register for VAT. An odd way to start a blog about how to register, but it’s an important point to make. VAT registration is only a requirement if your taxable turnover – the total you make from sales – reaches the £90,000 registration threshold in a 12-month period.
Some businesses decide it’s useful to register for VAT before their turnover reaches the threshold, but this doesn’t affect the way you need to register.
What is my VAT taxable turnover?
VAT taxable turnover is the total amount your business takes from sales, minus things which are “exempt from VAT”. Something is normally exempt if it’s considered to be essential although this isn’t always a reliable definition, so it’s a good idea to check online. Typical examples of VAT exempt supplies include insurance, medical procedures, and training costs.
As a sole trader there isn’t any legal distinction between you and your business, so if you run multiple sole trader businesses, your turnover for VAT registration is the taxable turnover of all those businesses added together.
Turnover versus VAT taxable turnover
Your turnover is the total amount your business earns from sales. You might sometimes talk about it over a particular period of time. For example, “my turnover in 2023/24 was £80,000” would mean the business made £80,000 of sales in the 2023/24 tax year.
Your VAT taxable turnover is pretty much the same thing, except you don’t include things which are VAT exempt.
We know. Tax is fun.
When does the rolling 12-month period start and end?
Rather than looking at your turnover between specific dates, you’ll need to monitor it on a constantly rolling basis. This means you’ll get to the end of your first year in business (congratulations!) and then at the end of each month after that you’ll add the month’s figures to the previous amount.
If the total amount reaches £90,000 in any 12-month period, (or you realistically expect it to within the next 30 days), then it’s time to register.
Why do people volunteer to register for VAT?
Some businesses decide to volunteer for VAT registration, even though their VAT taxable turnover is still below the threshold.
This tends to be because the business regularly pays more VAT on purchases than it would charge on sales over the same period of time. Registering allows it to reclaim the difference between the two amounts.
It might also be so that the business appears to be larger and more established to customers, or in order to pitch for work in a particular sector which prefers dealing with VAT-registered businesses.
What are the consequences of registering for VAT late?
Failing to register your business for VAT when it should be will almost certainly result in a penalty from HMRC. The fine is worked out on a sliding scale dictated by how late you are to register, and how much you owe in VAT.
How much is the VAT registration penalty?
You’ll need to pay any VAT you owe from the period that you should have been registered, with an additional penalty of between 5% and 15% of your VAT debt.
And yes, you’ll need to pay that even if you didn’t charge VAT to your customers at the time the sale was made, so it’s coming out of the business instead of the customers’ pockets!
If a customer is VAT-registered, you could always raise a VAT-only invoice and request this from them retrospectively. But you know, it doesn’t exactly make for great customer relationships, which is why it’s so crucial to get all your VAT ducks in line at the right time.
The different ways you can register for VAT
There are three main ways you can register for VAT – it’s really just down to personal preference. Whichever option you choose, you can expect to receive your VAT registration number within 30 working days, though it might sometimes take a little while longer.
Register for VAT through an accountant
Handing the process over to a professional can make things faster and simpler, especially if you’re feeling nervous! If they already act on your behalf as an agent then adding VAT registration should be pretty straightforward, otherwise they’ll go through the list of information they need from you.
Register for VAT online
If you’d prefer to register for VAT yourself, you can do so through a simple online process on HMRC’s website. You’ll need:
- Your National Insurance (NI) number or Unique Taxpayer Reference (UTR)
- The company number if it’s an incorporated business
- The relevant bank account details
Sign into your Government Gateway account (or sign up for one) and request VAT services to get started.
Register for VAT via post
Though most businesses complete their VAT registration online, you can also register by post using a paper VAT1 form. Postal registration is a requirement (i.e., no online registration for you) if:
- You’re applying for a registration exception
- You’re joining the Agricultural Flat Rate Scheme
- You need to register multiple business units or divisions under different VAT numbers
Some of these scenarios might require you to provide additional information. You can find guidance around this on HMRC’s website or ask your accountant.
Choosing the right VAT accounting scheme for you
When you register for VAT, you can select a VAT accounting scheme to use, or you can join a different scheme later. There are several options available, though some do have eligibility restrictions which might block you from joining.
What happens after I register for VAT?
You’ll need to make VAT submissions on a regular basis, although just how regularly you need to do so depends on which scheme you pledge allegiance to (which scheme that you register for, sorry, we’re theatrical).
It’s also crucial that you keep meticulous records of all your transactions, and comply with the digital record-keeping requirements of Making Tax Digital.
OK, so we do really like good bookkeeping and it is our job to shout about the benefits, but it’s also the best way to keep yourself on track.
What happens if my turnover falls below the registration threshold after I register for VAT?
Business fluctuates, so if it’s a temporary dip then you’re probably best staying where you are. De-registering and then re-registering is just a lot of extra admin hassle otherwise.
Again, this can be done in several different ways: online, via post, or through an accountant. Whichever option you choose, you’ll need to fill out a VAT7 form and ensure it reaches HMRC within 30 days of your ineligibility.
It typically takes about three weeks for your cancellation date to be confirmed but it’s worth noting that you will still need to complete a VAT return for the period up to (and inclusive of) this date.
You will also need to cancel your VAT registration if you cease to produce VAT taxable goods or services, or if your business stops trading entirely.
If your business continues to trade in VAT taxable goods or services, you will need to re-register for VAT if your turnover exceeds the £90,000 threshold again.
We do like things to be as straightforward as possible. Find out more about VAT management with Pandle software, or create your account to get started.
