Everything you need to know about registering for VAT

Updated on May 24, 2022

Anyone who owns a small business, especially those who are already burdened by paperwork and are unsure of HMRC’s requirements, can find VAT a daunting task. Our explanation explains what VAT is, how it affects your business, and when you must register.

A quick introduction to VAT

When you buy something in the United Kingdom and it’s sold, you’ll have to pay VAT, which is short for “Value Added Tax.”

If you’re not registered with HMRC, you can’t charge VAT to your customers when you sell something. When VAT is charged on a sale, it is referred to as a “taxable sale” or “VATable sale”. VAT-exempt or VAT-exempt sales are not taxable sales in the UK.

Registration is only required if your company’s yearly taxable sales exceed HMRC’s cap of £85,000 per year.

When do you need to register for VAT?

You must register for VAT if your yearly taxable sales exceed £85,000 or are expected to do so within the following 30 days. Compulsory registration is the term for this practise.

The barrier for registering isn’t always clear. When your company chooses to self-register for VAT, it is referred to as “voluntary registration,” and it can have a positive impact on your cash flow. Customers who are members of the general public or small enterprises without VAT registration may not be able to claim back the money they pay you in the form of VAT, which is why it may not be a smart idea to register for VAT in the first place. Your clients may end up paying more for the same products or services that you do as a result.

How to register for VAT in the UK

Virtually everyone must register for VAT online. In the event that HMRC accepts your application for registration, they will issue you a certificate that includes your company’s unique VAT number.

What happens after you register?

As soon as you’ve registered your business for VAT, you must charge VAT on all taxable sales it makes to its consumers. ‘Output VAT’ refers to the tax you charge your consumers. To figure out how much output VAT you should charge, you can make use of our VAT calculator.

Some of the VAT you pay to your suppliers will be eligible for a refund. Consider that you may not be able to claim VAT on some products, such as entertaining non-employees. ‘Input VAT’ refers to VAT that can be reclaimed.

A regular VAT return must be filed to HMRC in order to indicate the amount of production and input VAT you have charged and reclaimed. The difference between your business’s output VAT and its input VAT is what you must pay to HMRC on your VAT return.

If your input VAT exceeds your output VAT, HMRC will refund you the difference.

Filing your VAT return using FreeAgent

As you enter your accounting data each quarter, FreeAgent prepares MTD-compliant VAT returns. You can file your VAT return directly to HMRC from the programme when it is due.

Find out more about VAT in FreeAgent

Managing the transition period

In most cases, you must wait a length of time after submitting your application to receive your VAT registration number and certificate. You’ll be required to charge output VAT on all sales made after the date of your registration, but you won’t be able to issue official VAT invoices until you have your VAT registration number. Until you are officially registered, you must charge VAT at the applicable rate – often 20% – on the entire value of all of your invoices, starting from the date of your application.

You’ll need to re-issue any invoices you issued to customers during the interim period after you have your VAT registration number. Your consumers will be able to claim VAT back on purchases they’ve made from you as a result of this.

HMRC or an accountant should be consulted whenever you have questions concerning VAT or its impact on your business.