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Registering for VAT in the UK

Registering for VAT in the UK

When Should I Register for VAT?

If you run your own business – whether as a sole trader, one side of a partnership, or as a limited company – there may come a time when you have to register for VAT. As it happens, VAT is an essential contribution from many businesses nationwide, and your eligibility to pay such fees will vary depending on your yearly income. 

Registering for VAT can seem like a little bit of a mountain to climb. After all, you’re likely already registered with HM Revenue and Customs – meaning that at some point, if you’re successful enough, you’ll need to register for a completely new type of tax on top. As it’s always a good idea to keep in step with HMRC, here’s what you need to know about VAT, registration, and what it means for your returns. 

a man printing his vat receipt

What Is VAT?

VAT, or Valued Added Tax, is added to the price of most products and services sold in the UK. This added tax is only included for businesses if they qualify for VAT registration – and, pre-Brexit, it followed standards set by the European Union. Post-Brexit, some of the red tape has changed a little, but the basic rules and standards remain the same for business owners.  

When buying from shops or restaurants, or paying for individual invoices, you may find that VAT is added at a rate of 20% towards the bottom of any receipts you receive. That’s because the business or brand you pay has to offset their own VAT contributions by adding an extra 20% value on top of the sale. 

There are currently three different VAT rates chargeable nationwide – however, it is important to note that the rates can change depending on the goods or services involved 

Typically, you can expect a standard 20% VAT charge to apply for most goods and services within the UK.  

Some goods and services, on the other hand, benefit from a reduced 5% VAT rate. These really can vary – for example, you may pay a lower rate of VAT on a home extension. 

Finally, some goods and services have a 0% rates (which is usually the case for food and the majority of children’s clothing, although, again, it depends). In some cases, VAT doesn’t even apply at all – making this somewhat confusing for the uninitiated. 

However, let’s get back to how VAT could affect your own enterprise. 

When Should I Register for VAT?

At the time of writing, if your taxable turnover from the past year was over the VAT threshold (currently £85,000), HMRC will require you to register for VAT status, and to file VAT returns. This annual period will run from the end of one year of business books to the next (typically April 5th – April 4th, however, this can vary if you’ve set yourself a specific accounting period). 

You will also have to register for VAT if you calculate that your turnover will exceed the threshold in 30 days’ time. Therefore, it’s always good to ensure you have your books made up from month to month. 

If you and your business are based outside of the UK, and if you supply any of your goods or services to the UK, or are planning to within the forthcoming 30 days, then you will also have to set up for VAT. 

Finally, you can also choose to pay VAT even if you make less than £85,000 taxable. This is known as a voluntary registration – and it could actually save you money on certain supplies. Registering for HMRC means you’ll owe a VAT return and payment the same day – so it’s absolutely vital to seek advice from an accountant if you anticipate hitting the threshold soon. 

How Do I Register for VAT?

Thankfully, registering for VAT should not take you too long – with or without an accountant’s help. If you’re already filing self-assessment returns or on behalf of a limited company, you should already have a Government Gateway ID – which grants you access to a central hub where you can register for VAT and other services. 

Once you have registered yourself for VAT, you will receive a nine-digit VAT number. That number is to be noted on every single invoice you raise from the moment you get it! You’ll also need to apply VAT at the current rate to all invoices you raise. 

You will also receive your confirmation of registration, which will also be known as the effective date of registration. From the moment you receive the confirmation, you will be expected to start charging VAT on all of your sales of goods or services. You will also be able to reclaim VAT on the things that you have bought from the effective date of registration.  

Until you get your VAT number, you will not be able to include a VAT price on your current prices. However, you can increase the prices for your goods and services to ensure that the VAT price will be included in the amount that you will owe to HMRC.  

Finally, you will be informed about when you will be expected to submit your first VAT return and payment from the date of confirmation. Simple! 

a well dressed entrepreneur registering for VAT on his laptop

In Summary…

Registering your business for VAT may sound like a pain, but it is an essential part of running your own enterprise – once you’re successful enough. You can be penalised for neglecting to do so – even if you register, file or pay late. You will be asked to pay what you owe the HMRC from the moment your turnover surpasses the VAT threshold and may even be fined for your neglect. 

Therefore, it pays to get VAT right. Consider this an introductory guide! If you’re worried about how to manage VAT on your own, it pays to reach out to a professional accountant and/or bookkeeper who can help you to prepare your books and file the relevant paperwork when demanded.

In the meantime, making enough money to register for VAT is an impressive milestone – celebrate it! 

If you’ve not got enough cash in the business to cover your VAT bill, we could cover you up to 15k. You can Apply Now with the confidence of knowing there won’t be a hard credit search. Also, to note – some of our lenders actually specialise in business loans for bad credit.