Do I need to register for VAT?

by Abbas Gulamhusein

If you run a business above a certain size, you'll need to register for VAT whether you want to or not. The threshold is simple in principle but often misunderstood in practice, and missing it creates real problems.

The threshold and what counts

Your obligation to register is triggered by turnover. The threshold is £90,000 of taxable turnover over a rolling 12-month period. Not a calendar year, a rolling 12 months. If at any point your last 12 months of turnover exceeds £90,000, you must register. There's also a look-forward rule: if you expect to exceed £90,000 in the next 30 days alone, you're required to register immediately.

Here's where it gets tricky. Taxable turnover means sales of VATable goods and services. It doesn't include exempt supplies. Residential rent is exempt. Insurance is exempt. Financial services are exempt. So a property developer renting out residential units won't hit the threshold on rental income alone, even if the rents are substantial. But the same developer selling investment property would count that as taxable turnover.

The practical impact is that you need to know what part of your income is actually subject to VAT. If you're in a mixed business, you're only counting the taxable portion when assessing whether you've crossed the threshold.

What happens when you register

Once registered, you're required to charge VAT on your supplies at the applicable rate. The standard rate is 20%. Some supplies are reduced rate (5%), others zero-rated. You also must file VAT returns using compatible software through Making Tax Digital for VAT.

The return itself is clear in concept. You work out the VAT you've charged on sales (output tax), the VAT you've paid on business expenses (input tax), and you pay over the difference to HMRC. If you've paid more input tax than output tax, HMRC refunds you. Most businesses file quarterly or annually.

One thing people get wrong: registration is not optional if you hit the threshold. You can't choose not to register because it'll make you cheaper. The obligation is statutory. If you miss the deadline, HMRC can assess you for the VAT you should have charged going back to the date you should have registered.

Voluntary registration

You don't have to hit the £90,000 threshold to register. You can apply voluntarily even if you're well below it. The reason to consider it: if your customers are mostly other VAT-registered businesses, they can reclaim the VAT you charge them, so they don't pay 20% more. Being registered can make you more competitive with B2B customers.

Once registered, you can also reclaim the VAT you pay on business expenses: software, equipment, professional fees. For a service business with high costs, early registration might improve cash flow by recovering VAT before you hit £90,000.

The downside: if your customers are mostly consumers paying out of pocket, they can't reclaim VAT and you'll look 20% more expensive than an unregistered competitor. The decision depends on who your customers are and whether they can reclaim VAT.

VAT schemes

Once registered, you have options on how you account for VAT. The standard method requires accounting for every transaction, but there are alternatives.

The Flat Rate Scheme lets you pay a fixed percentage of gross turnover instead of accounting for each transaction. For service businesses with low input costs, this often works out cheaper. The Cash Accounting Scheme lets you account for VAT when you receive payment, not when you invoice, which helps if cash flow is tight. The Annual Accounting Scheme lets you file one VAT return a year instead of quarterly. Each has conditions and different businesses benefit from different approaches.

The key practical point

The mistake we see most often is businesses missing the registration deadline. You hit £90,000 of taxable turnover and you're now liable to register. You have to notify HMRC within 30 days. If you miss that deadline, you're still liable for the VAT from the date you should have registered, even though you haven't been charging it. You've been selling at prices that included a margin you kept, but now you owe HMRC 20% of the revenue for a period of months. That's a material cash flow hit that could have been prevented.

Monitor your turnover carefully, especially in your first couple of years. When you hit the rolling 12-month position where you've done £90,000, register immediately. Don't wait. The operational setup for VAT compliance is simple once you're ready, but missing the deadline has real financial consequences.

If your turnover is close to the threshold or you're thinking about voluntary registration, get in touch with us at Saymur. We can help you understand which supplies count toward the threshold, which scheme would work best for your business, and make sure you register on time.