When to register for VAT – a small business guide

Updated on July 3, 2022

Is there a time limit on when a company should register for Value Added Tax?

Our guide answers the most frequently asked concerns regarding VAT, including the VAT threshold and when to register, as well as directing you to official government guidance.

What is VAT?

Taxes on the purchase of goods and services are known as VATs (Value Added Taxes).

Businesses are required to collect and remit VAT on all purchases they make.

How to get VAT registered: initial steps

A VAT taxable turnover of £85,000 in the UK necessitates VAT registration.

To calculate your VAT taxable turnover, add up the value of any goods and services you offer that are not VAT exempt (exemptions include the sale of lottery tickets, postage stamps, and some financial services).

Using the calculation guide provided by the UK government, you can determine your taxable turnover for VAT purposes.

HMRC will send you a VAT registration certificate once you’ve completed the registration process.

The effective date of VAT registration is the initial VAT return (and payment) information included in the VAT number.

Even if you haven’t yet received your VAT number, you may still be required to pay VAT during this time. You should raise your prices to accommodate this, according to the UK government’s website. Explain to your customers what’s going on, and plan to reissue the invoices with VAT once you get your VAT number in order to avoid any confusion.

As of the date your registration becomes effective, you must:

Taxes must be charged appropriately, any overdue taxes must be paid, and VAT returns must be filed in accordance with HMRC’s Making Tax Digital for VAT guidelines (in most cases)
For more information on this crucial subject, see our Making Tax Digital brochure.

If you’re looking for more general information on taxes, we have a Self Assessment and Tax Site resource hub.

Why should I register for VAT?

If your annual revenue exceeds £85,000, you are legally required to register for VAT; but, you may choose to do so on a voluntary basis.

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You can reclaim VAT on your purchases if you register for VAT. In the event that you pay more VAT than you collect from your clients, you might reclaim VAT to cover the difference.

By not having to worry about turnover, you’ll be in a position to expand.

VAT registration, on the other hand, entails additional labour and, on occasion, higher fees from HMRC (if you collect more VAT from customers than you pay out). When selecting whether or not to register for VAT, you should take into account the peculiarities of your firm.

How to set up a VAT account

Using your business tax account, you can register online in the shortest amount of time possible.

Online VAT registration is available through the UK government.

HMRC can alternatively be registered and dealt with by an agent (such as an accountant or tax advisor).

You may watch a video about VAT here: A VAT handbook for small enterprises in the UK
The process of filing a VAT return via postal mail
A VAT1 form is required for some businesses, therefore they will need to print one off and mail it in. Businesses that fall within this category include those that fall into the following categories:

requesting an exemption from registration

joining the Agricultural Flat Rate Scheme by registering separate VAT numbers for each of the business’s divisions
Visit the government’s how to register page to see if you need to fill out an additional form for your business.

What exactly is a VAT certificate?

In the United Kingdom, HMRC will provide you a VAT certificate to confirm that your company is registered for VAT.

There is also a section for ‘Effective Date of Registration’, which specifies the date on which you are required to file your first VAT return and pay your bill.

My VAT registration certificate is due when?

You should receive your VAT registration certificate in 30 working days, although it may take longer than that.

If you’ve registered by mail or through an agent, you should check your online account to see if you’ve received any correspondence.

There are several ways to obtain a VAT number.

On your VAT registration certificate, you will find your VAT number, which must be included on all invoices you send out.

If a corporation is VAT-registered, how can you find out

Examining the invoices you’ve received can reveal whether or not the business with which you’re working is VAT registered. If their VAT number isn’t on the invoice, you won’t be able to claim VAT back.

If you haven’t already, get in touch with the company right away.

By calling HMRC’s VAT helpline at 0300 200 3700, you can double-check the legitimacy of a certain VAT number in use.

The VAT Information Exchange System of the European Union can be used to verify a firm in the EU (VIES).

In 2022, what is the VAT limit?

The VAT threshold is equal to the previously indicated VAT taxable turnover value.

You must register for VAT if your turnover exceeds £85,000, or if you know it will.

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When selling specific goods or services in certain places or markets, such as Northern Ireland and the European Union, some enterprises will additionally need to register. Learn more about the registration deadlines.

Registration for Value Added Tax
When the following conditions are met:

It’s expected that your VAT taxable turnover will reach £85,000 in the next 30 days.
Remember that these are calculated on a rolling basis, so it’s not enough to check your taxes once a year and register if your income has crossed the threshold. In order to register on time, you’ll need to keep track of your 30-day and 12-month rolling periods regularly.

Within 30 days, exceeding the VAT threshold.

If your total VAT taxable turnover is expected to exceed £85,000 in the following 30 days, you will need to register for VAT purposes. You must accomplish this by the end of the 30-day period because the effective date of registration is the date you realized it (not the date you go over the threshold).

Example of a 30-day VAT rule

The average monthly turnover for your company is £4,000, which is all VAT taxable. You’ve gotten a surprise contract for £88,000 after some last-minute scaling up. Within the following 30 days, this will put you above the £85,000 VAT threshold.

You’ve come to terms with the fact that, as of March 1, 2022, your taxable income will surpass the threshold, necessitating your registration for VAT, which will take effect on March 1, 2022.

Exceeding the limit in the last year

Since the last 12 months’ total VAT taxable turnover exceeded £85,000, you must register for VAT.

However, you must register within 30 days of the end of the month that you went over the barrier in order to keep your account active.

Your registration will go into effect on the first of the second month after the month in which you cross the threshold.

Example of a 12-month VAT rule

Due to a surge in demand for your product, your usual 12-month turnover is £70,000. As of 28 February 2021, your VAT taxable turnover will be more than £90,000, exceeding the £85,000 VAT threshold for that year.

VAT registration must be completed and effective on 1 April 2022 if you want to avoid fines and penalties for noncompliance.

Taking control of a company

You should check the VAT registration status of a business as soon as you can if you’re taking over that business.

Even if your business is already VAT-registered, you need still to register.

Businesses based outside of the United Kingdom

Businesses outside of the United Kingdom are not subject to thresholds.

As soon as you start supplying goods and services to the UK, or within the next 30 days, you must register.

Failure to register for VAT
If you don’t register on time, you’ll be responsible for paying the VAT due as of the day you were supposed to register.

A fine or other punishment is also an option.

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Is there a way to avoid paying VAT?

You can apply for an exception if you know you’ll only go over the limit for a short period of time.

For the next 12 months, you’ll need to provide proof that your VAT taxable turnover won’t exceed the deregistration level of £83,000

HMRC can be contacted at this address:

In the Imperial House, 77 Victoria Street, Grimsby, DN31 1DB HM Revenue & Customs – VAT Registration Service

HMRC will provide you a written confirmation if they approve of your claim. Otherwise, you’ll be subject to VAT registration.

Why not offer digital services instead?

Beginning on January 1, 2021, new VAT regulations will apply to the provision of digital services to EU countries (the end of the Brexit transition period). Included on this list are video and music streaming, e-book publishing and telephony as well as software and gaming.

In the past, there was a threshold of £8,818 above which you had to register in each country where you provided digital services or sign up for VAT MOSS if your sales exceeded this amount.

Until recently, there was a barrier at which you could avoid paying VAT, but that threshold has since been eliminated.

After January 1, 2021, the VAT MOSS scheme in the UK will no longer be available for usage. Only until December 31, 2024, can you use VAT MOSS to make changes to your registration information.

The EU VAT MOSS non-union scheme requires you to register in a member state or in each EU state where you make sales.

See what others have to say about delivering digital services to clients.

Changing or canceling VAT registration

Your first port of call for handling any modifications to your VAT registration is the official UK government website:

Changing the VAT location (or any other details)
To make changes to your VAT registration details, such as your address, name, accountant, or bank account information, go to the government’s Changes to Your Details page.

If you are taking on responsibilities for someone who has died or is unwell, you should also refer to this page.

VAT registration can be canceled

You may be required to cancel your VAT registration by a specific date under certain circumstances. Online cancellation of VAT registration is available.

Changing your VAT registration is easy.

If the status of your firm changes, you may need to transfer a VAT registration from one entity to another (for example from partnership to sole trader).

To learn about the entire procedure, refer to the government’s page on transferring a VAT registration.

What is the impact of VAT on your company? Let us know what you think in the comments section.