Simply Business - Insurance for your business

Call Us0333 0146 683
Our opening hours
Knowledge centre

VAT registration – what small businesses should know

6-minute read

VAT registration – what small businesses should know
Simply Business Editorial Team

Simply Business Editorial Team

13 August 2021

When should businesses go through VAT registration? Our guide answers the most common questions about VAT – from the VAT threshold to when to register – and also points you towards official government guidelines.

Get your free guide to VAT registration

Get your free in-depth guide to learn why businesses should register and common questions about VAT.

Your email address will be used by Simply Business to keep you posted with the latest news, offers and tips. You can unsubscribe from these emails at any time. Simply Business Privacy policy.

VAT registration: initial steps

VAT stands for Value Added Tax, which is a type of tax on the consumption of goods and services. Businesses pay VAT on purchases and charge customers VAT.

In the UK, you need to register your business for VAT if your VAT taxable turnover exceeds £85,000. Your VAT taxable turnover is the total value of everything you sell that’s not exempt from VAT (exemptions include lottery ticket sales, postage stamps or services, and certain financial services – but VAT is applicable in some form to most goods and services).

You can work out your VAT taxable turnover using gov.uk’s calculation guide.

Once you’ve registered, HMRC will send you a VAT registration certificate, confirming your:

  • VAT number
  • first VAT return (and payment) details
  • effective date of VAT 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. 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.

Why should I register for VAT?

If your turnover is above £85,000 then you need to register by law, but you can also register voluntarily.

Registering for VAT lets you reclaim VAT on your purchases. If you pay more VAT than you collect from customers, reclaiming VAT makes up the difference.

It also means you’re ready for growth because you won’t need to keep an eye on your turnover.

On the other hand, VAT registration means more paperwork, and sometimes you’ll pay more to HMRC (if you collect more VAT from customers than you pay out). It’s best to look at the specifics of your business when deciding whether to register for VAT.

How to register for VAT

The easiest way is to register online, using your business tax account. Register online for VAT at gov.uk’s VAT registration hub.

An agent (for example, an accountant or tax adviser) can also register your business and deal with HMRC for you.

VAT registration by post

Some businesses can’t register online and will need to send a VAT1 form by post. This can include businesses that are:

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

You might need to complete an additional form, depending on your business – use gov.uk’s how to register page for guidance on which one applies.

Will I get a VAT registration 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.

How to get a VAT number

Your own VAT number will be on your VAT registration certificate and this number has to go on invoices you send out.

Conversely, if you want to find another business’s VAT number, you should look at invoices you’ve been sent first. The number should be on there – if it’s not, the invoice will be invalid, meaning you can’t reclaim VAT. You should get in touch with the business straight away.

You can check that a VAT number is valid by calling HMRC’s VAT helpline on 0300 200 3700 or by using the European Union’s VAT Information Exchange System (VIES) (if checking EU businesses).

What is the VAT threshold?

The VAT threshold is the VAT taxable turnover figure mentioned earlier. If your turnover goes over £85,000, or you know it will, you must register for VAT.

Some businesses will also need to register when selling particular goods or services, and in certain locations or markets, for example Northern Ireland and the EU. Read more about when to register at gov.uk.

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.

Exceeding the VAT 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 that you’ll exceed the threshold on 1 July 2021, which means you’ll need to register for VAT by 30 July 2021, and your effective date of registration will be 1 July 2021.

Exceeding 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, 2021 has been busy due to a spike in orders driven by the end of restrictions. Looking at the period 28 July 2020 to 27 July 2021, 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 30 August 2021, and your effective date of registration will be 1 September 2021.

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 registration

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.

What if I supply digital services?

The rules on paying VAT when supplying digital services to EU countries changed on 1 January 2021 (the end of the Brexit transition period). These services include broadcasting, ebooks, telecomms, video, music downloads, games, apps and software.

Before, there was an £8,818 threshold, so if your sales went over this amount you had to register in each country where you’re supplying digital services or sign up for VAT MOSS to get started).

Now there’s no threshold, so you have to charge VAT at the right rate for where your customer is based and declare those sales to the appropriate country.

You can carry on using the UK’s VAT MOSS scheme but will also need to register for the EU VAT MOSS non-union scheme in a member state, or register in each EU state you make sales.

Read more about supplying digital services to customers at gov.uk.

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 cancel VAT registration at gov.uk.

Transferring VAT registration

You might want to transfer a VAT registration from one business to another, or if the status of your business changes (for example from partnership to sole trader).

You can transfer a VAT registration at gov.uk. The page 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.

Ready to set up your cover?

As one of the UK's biggest business insurance providers, we specialise in public liability insurance and protect more trades than anybody else. Why not take a look now and build a quick, tailored quote?

Start your quote

We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

Find this article useful? Spread the word.

Share
Tweet
Post

People also liked

Landlords could be targeted in new capital gains tax raid.

19 November 20202-minute read

Landlords could be targeted in new capital gains tax raid

Landlords could be hit by another massive tax raid, as the Office of Tax Simplification outlines its recommendations for an overhaul of…

Read more

Keep up to date with Simply Business. Subscribe to our monthly newsletter and follow us on social media.

Subscribe to our newsletter

Categories

Popular articlesBusiness resources from FarillioGeneral businessGuestInsuranceLandlordLandlord resources from FarillioLegal and financeMarketingNewsOpinionProperty maintenanceTradesmanCovid-19 business support hub

Address

6th Floor99 Gresham StreetLondonEC2V 7NG

Sol House29 St Katherine's StreetNorthamptonNN1 2QZ

© Copyright 2021 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.