VAT registration requirements for business

This is a very common question and the answer depends on a few key factors. Let me walk you through the legal position and practical considerations.

Compulsory registration:

You must register for VAT if your VAT taxable turnover in the previous 12 months (on a rolling basis, not just by tax year) exceeds the current registration threshold, which is £90,000 as of 1 April 2024. You must also register if you expect your taxable turnover to exceed £90,000 in the next 30 days alone.

"Taxable turnover" means the total value of everything you sell or supply that is not VAT exempt. This includes zero-rated supplies, which still count towards the threshold even though VAT is charged at zero percent.

You must register within 30 days of the end of the month in which you exceeded the threshold. Failure to register on time can result in penalties and a requirement to account for VAT you should have been charging.

Voluntary registration:

Even if your turnover is below £90,000, you can choose to register voluntarily. This can be worthwhile in certain situations, for example:

1. If your customers are mainly VAT-registered businesses, because they can reclaim the VAT you charge, so it does not put them off, and you benefit by being able to reclaim VAT on your own costs and purchases.
2. If you have significant input costs that include VAT, such as materials, equipment, or professional services, voluntary registration lets you recover that VAT.
3. If it lends your business a degree of credibility or perceived scale.

When voluntary registration may not make sense:

If your customers are mainly consumers or small unregistered businesses, adding 20 percent to your prices could make you less competitive. You would also take on the administrative burden of keeping VAT records and submitting returns, which must now be done digitally under Making Tax Digital rules.

Deregistration:

If your taxable turnover drops below £88,000 (the current deregistration threshold), you can apply to deregister.

VAT schemes worth knowing about:

Once registered, there are different schemes that can simplify things or reduce the amount of VAT you pay, including the Flat Rate Scheme (useful for businesses with low costs), the Cash Accounting Scheme (you only account for VAT when you actually receive payment), and the Annual Accounting Scheme (one return per year instead of quarterly). Each has its own eligibility rules and pros and cons depending on your business type.

Things I would need to know to give you more specific guidance:

What is your current or projected annual turnover? What type of goods or services do you supply? Who are your typical customers (businesses or consumers, UK or overseas)? Do you have significant purchases on which you are paying VAT?

If you can share a bit more about your situation, I can help you work out whether registration is necessary or strategically sensible.