Do I really need to register for VAT?
frequently asked questions

Well, that depends on your particular circumstances. If your turnover in a 12-month period reaches the current £85,000 threshold, then registration is compulsory – and if you don’t do it, you’ll receive a fine as a penalty. If you don’t hit this figure, then registration isn’t obligatory, but you can still register voluntarily if you wish to do so.

You must register for VAT when:

  • Your VAT taxable turn over is over the threshold in a 12-month period – that’s the total value of everything you sell that isn’t VAT-exempt;
  • You expect or know you will go over the threshold over a 30-day period.

When we talk about 12-month period, we mean any rolling 12-month period – for example, from the start of July to the end of June. That’s different from the calendar year or your tax year, which represent fixed periods.

Why would I consider voluntary registration?

If your turnover is below £85,000, you can still opt for voluntary registration – which has certain benefits for some businesses.

The main advantages is that you can reclaim VAT on most goods or services you buy for your business. So, for example, you might collect £1,000 in VAT from your customers over a 3 month period. In the same period you also buy something from a supplier and you're charged £200 + VAT (Total: £240).

The amount you have to give to HMRC is the VAT you've collected (often called "Output VAT") minus the VAT you've paid out ("Input VAT"). So in this example you'll be handing over £960 (1000 minus 40). This means you're essentially £40 better off than you would have been if you weren't VAT registered.

There are other advantages too:

  • It can boost your business profile, as it makes you seem bigger and more established;
  • You receive a VAT number, which you can show on websites and forms to give your business an extra professional touch.
Antony Kidless
Antony Kidless
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