A guide to VAT for small businesses

From the VAT threshold to registering for VAT, are you clear on your responsibilities for this crucial UK tax? Our guide is designed to answer the most common questions, and point you in the right direction for official government guidelines.

• How to register as self-employed with HMRC
• Small business guide to UK Corporation Tax rates
• The small business guide to Self Assessment tax returns
• A guide to dividend tax and the dividend tax rate
• Is public liability insurance tax deductible?

When to register for VAT

So, how much do you have to earn to be VAT registered?

In the UK, you need to register your business for Value Added Tax (VAT) if your VAT taxable turnover exceeds £85,000. Once you’ve registered, HMRC will send you a VAT registration certificate, confirming:

• your VAT number
• when to submit your first VAT Return and payment
• your ‘effective date of registration’

You can’t charge or show VAT on invoices until you know your VAT number, but you may still need to pay VAT for this period, so gov.uk recommends increasing your prices to allow for this. Explain what’s happening to your customers, and plan to reissue the invoices showing VAT once you have your VAT number.

From your effective date of registration, you’ll need to:

• charge VAT correctly
• pay any VAT that’s due
• submit VAT returns
• keep VAT records and use a VAT account
• follow HMRC’s Making Tax Digital for VAT rules (in most cases)

Read our guide to Making Tax Digital for more help on this important topic. There’s also our tax responsibilities for startup businesses, if you need a more general guide to tax.

What is ‘VAT taxable turnover’?

VAT taxable turnover is the total value of everything you sell, unless it’s exempt from VAT. Use gov.uk’s calculation guide to work out your VAT taxable turnover.

How to register for VAT

The easiest way is to register online, using your business tax account. Head to gov.uk’s registration hub to get started. An agent can also register your business and deal with HMRC for you.

Registering by post?

Some businesses can’t register online and will need to use a VAT1 form by post. This may also apply if you’re:

• applying for a registration exemption
• joining the Agricultural Flat Rate Scheme
• using separate VAT numbers to register different parts of the business

There are a few different VAT1 forms – use gov.uk’s how to register page for guidance on which one applies to your business.

Where’s my VAT certificate?

Your VAT registration certificate should arrive within 30 working days, but this can take longer. Remember to check your online account as it will usually be sent there, unless an agent is handling things for you, or you’ve registered by post.

What is the VAT threshold?

The UK VAT threshold is £85,000 in VAT taxable turnover. If your turnover exceeds this amount, or you know it will, you must register for VAT. See What is ‘VAT taxable turnover’? above for guidance.

When to register for VAT

VAT registration becomes compulsory when:

• you expect your VAT taxable turnover to go over £85,000 in the next 30-day period
• your business had a VAT taxable turnover exceeding £85,000 over the last 12 months

Remember, these are calculated on a rolling basis, so it’s not enough to review your taxes once a year and register if your income has exceeded the threshold. You’ll need to keep a regular check on your rolling 30-day and 12-month periods and register on time.

Some businesses will also need to register when selling particular goods or services, and in certain locations or markets.

Expecting to exceed the threshold in the next 30 days?

If you think your total VAT taxable turnover will go over £85,000 in the next 30-day period, you’ll need to register. You must do this by the end of that 30-day period, because the effective date of registration is the date you realised (not the date you go over the threshold).

VAT 30-day rule example

Your business has a typical monthly turnover (all VAT taxable) of £4,000. With some last-minute scaling up, you’ve unexpectedly secured a single contract for £88,000. This will take you over the £85,000 VAT threshold during the next 30 days.

You realised you’d exceed the threshold on 1 July 2020, which means you’ll need to register for VAT by 30 July 2020, and your effective date of registration will be 1 July 2020.

Have you exceeded the threshold in the past 12 months?

If your total VAT taxable turnover for the last 12 months was over £85,000, you’ll need to register. You can check this at the end of every month, but you must register within 30 days of the end of the month you went over the threshold.

Your effective date of registration will be the first day of the second month after you go over the threshold.

VAT 12-month rule example

Although your typical 12-month turnover is £70,000, 2020 has been busy due to a coronavirus-driven spike in orders. Looking at the period 28 July 2019 to 27 July 2020, you can see your VAT taxable turnover will go over £90,000, taking you over the £85,000 VAT threshold for that 12 months.

This means you’ll need to register for VAT by 31 July 2020, and your effective date of registration will be 1 August 2020.

Taking over a business

If you’re taking over a business, check its VAT registration status as early as you can. You may need to register for VAT, even if it’s already registered.

Businesses outside of the UK

Thresholds don’t apply to businesses outside the UK. You’ll need to register as soon as you supply goods and services to the UK, or if you expect to in the next 30 days.

Late VAT registrations

If you register late, you’ll need to pay the VAT owed from the date you should have registered. You may also get a penalty.

Can I get a VAT exception?

If you know you’re only going to breach the threshold temporarily, you can apply for an exception. You’ll need to show evidence why you believe your VAT taxable turnover won’t exceed the deregistration threshold of £83,000 in the next 12 months.

You can write to HMRC using this address:

HM Revenue and Customs - VAT Registration Service Imperial House 77 Victoria Street Grimsby DN31 1DB United Kingdom

If they agree with your application, HMRC will confirm this with you in writing. If not, they’ll register you for VAT.

Do you supply digital services?

If you provide digital services to EU countries, you may need to register for VAT in those countries even if your turnover is below the VAT registration threshold. These services include broadcasting, ebooks, telecomms, video, music downloads, games, apps and software.

The threshold is £8,818 before VAT in a January to December calendar year. If you go over this amount, you must:

• register in each country where you’re supplying digital services, or
• sign up for VAT MOSS (read our guide to the VAT MOSS service to get started)

Cancelling, changing or transferring VAT registration

Gov.uk is your starting point for managing any changes to your VAT registration:

Changing VAT address (or any other details)

Use gov.uk’s Changes to your details page to edit your address, name, accountant information, bank details or anything else connected with your VAT registration. You should also use this page if taking on responsibilities for someone who has died or is ill.

Cancelling VAT registration

In some situations, you must cancel your VAT registration by a certain date. You can get this process started using gov.uk’s Cancel registration page.

Transferring VAT registration

If you need to transfer a VAT registration, head to gov.uk’s Transfer registration page. It explains the process from start to finish.

How does VAT affect your business? Will it change following the government’s recent Covid-19 VAT announcements? Let us know in the comments.