UK VAT Registration
In the United Kingdom, you are required to begin your VAT registration with HM Revenue and Customs, if your business has a VAT taxable turnover of more than £85,000.
In some cases, you may wish to register for VAT even if you have not reached the VAT registration threshold. This is classified as voluntary VAT registration. Check Small Business Trends for further resources on doing business in the UK.
What Is The Current UK VAT Threshold?
The current VAT threshold for 2021 is set at £85,000. You should make sure to keep up to date with the VAT limit each year as it is liable to change.
In 2007 the VAT threshold was only £64,000, but since then the yearly VAT threshold has gradually increased to £85,000 which we now stand at. Remember, the UK’s VAT threshold is calculated on your earning within the last 12 months, from any given point.
The pre VAT limit is not fixed to the calendar year and if you fail to register your business for VAT once it has passed the registration threshold you could face a fine.
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How to Register For VAT
The VAT registration procedure is simple. Once your business has reached the £85,000 VAT threshold, or if you wish to register voluntarily you will need to start your VAT registration with HMRC. You can register your business yourself, however, it may be easier for an accountant or another financial agent to do this for you.
If you wish to register for VAT yourself then you can do so on the HMRC portal. You are also able to do this by filling out the VAT1 paper forms, which can be found on the forms for VAT registration page.
|What You'll Need For VAT Registration|
|Your Unique Tax Reference (UTR Code) - You will have received this ten-digit number when you registered to pay Corporation Tax.|
|The bank account details of your business|
|The company number and the address that your business is registered under|
|Information regarding any other businesses you’ve been associated within the last two years.|
Once you have successfully registered, you will receive your VAT registration certificate (VAT4). Normally this certificate will arrive within 14 days, but sometimes due to high demand, it can take longer.
|A VAT Registration Certificate Confirms:|
|Your Companies VAT number|
|When you are required to submit your first VAT return and payment|
|The date of your VAT registration – which depends on the date that your company passed the current VAT threshold or the date which you asked to join on if your registration was voluntary.|
Your Responsibilities When Registered For VAT
Once you have completed the VAT registration process and you have received your VAT registration certificate you are responsible for:
|Charging the right amount of VAT on the services or products you sell|
|Pay HMRC any VAT that is due|
|Submit your VAT returns|
|Keep records of your VAT and file your VAT accounts|
|Quoting your VAT registration number on all receipts and invoices that apply VAT to goods and services|
Benefits Of Registering For VAT – What Are They?
If your business is turning over more than £85,000 (total takings, not profit) within any 12-month period, you are required to register for VAT to stay within the law. You are also required to register if your turnover is expected to exceed the current VAT threshold within the next 30 days. You can calculate your VAT return here.
Below are ways that all businesses can benefit from being VAT registered.
Once you have registered for VAT, your business may be eligible to claim back VAT that you have paid within the last 4 years. From the date that you registered for VAT, you have 4 years to claim VAT back on goods that you still hold or that were used to produce other goods. Whilst you have 4 years to claim back VAT on goods, you’ll only have 6 months to claim back any VAT that you’ve paid on services before registration.
To be successful in your claim you will need to have supporting evidence, to prove the amounts you are attempting to claim. Such as VAT invoices and other receipts and records of the period you are claiming from. These claims can only be for purchases that your now-registered business has made and they must relate to your business purpose.
If you operate a small business, it may be worth registering for VAT regardless of your turnover. Other business-minded people or companies may be aware of the VAT threshold. If you are not VAT registered and do not display your VAT number, people may assume that you are a relatively small business, as you must be turning over less than £85,000.
By registering for VAT and displaying your VAT number for the public to see, you can appear bigger than you actually are, which may help to build confidence of clients/customers. It can also be very beneficial if you begin dealing with other businesses, as some will ask for VAT invoices, which you wouldn’t be able to raise if you weren’t registered.
Once you have successfully registered your business you can claim back the VAT that you have spent on goods and services (input tax). In the UK you are allowed to claim back as much as you have charged in VAT over the last year (output tax).
This means that if your business has paid a high amount of input tax but not charged much output tax, you may be due a large VAT refund. This is quite common in start-ups and new businesses that are investing money in machinery, tooling, and business services.
By registering for VAT voluntarily, you won’t have to pay as much attention to the VAT threshold. It also sets the tone with your company and shows that you are ready to expand, which can earn you respect from other businesses and customers.
Disadvantages Of VAT registration – What Are They?
Whilst there are several significant benefits of registering for VAT, there are a few potential disadvantages of becoming VAT registered:
Unless you are able to factor VAT into the existing cost of your product, you may find that you have to charge VAT on top of what you are already charging. Existing customers that are non-VAT registered might not be happy with this increase and may think that the new price is unreasonable.
If your business charges more VAT than it pays in goods and services, then you can end up with a hefty VAT bill. For some companies especially smaller ones this can be damaging to overall profits.
Unfortunately, there’s no way of avoiding the extra paperwork that VAT registration brings. Every business will need to collect all VAT invoices and receipts, as well as keeping a record of its own VAT accounts.
It can be very time consuming if you choose to file your VAT returns yourself. If you choose to outsource these tasks, it can be expensive too.
VAT Deadlines & Due Dates
You can check all of your VAT return and payment deadlines in the VAT online portal on the HMRC website. Here you will be able to find out when your VAT returns are due and the deadlines for payments to HMRC. Normally, you should file your VAT return once every three months (quarterly). Refer here for a short summary of important VAT dates.
Make sure to allow enough time for any payments to reach HMRC’s account, otherwise you may fail to meet the VAT return deadline and could face a fine. Some businesses chose to use the VAT Annual Accounting Scheme. If you use this scheme your deadlines will be different from those above.
If you miss a VAT deadline and file your VAT return late, this is known as a ‘default’. If your turnover is higher than £150,000 and you are late to submit your VAT return, a default surcharge liability notice will be generated.
This will happen on the first occasion that you’re late to submit your VAT return. This notice means that your VAT returns must be submitted by your VAT due date for the subsequent 12 months. If you fail to meet the VAT deadline again, an escalating penalty will take effect. These penalties are calculated from any unpaid tax liability.
If your turnover is lower than £150,000 and you fail to file your VAT return before your deadline, you will receive a letter politely reminding you that your VAT return was filed late. Again, this will only happen on the first occasion that you file late. If you file your return late within the subsequent 12 months you will receive a default liability notice.
If you are then late again you will incur the escalating penalties. The table below explains how much you’ll have to pay if you file your VAT late within a surcharge period.
- Pay your VAT in full by your due date
- Have no outstanding VAT or tax to pay
- Are due a VAT refund/repayment
Separate VAT Penalties
HMRC can charge you a penalty of up to:
- 100% of any under-stated or over-claimed tax if you file a VAT return that contains a careless or deliberate error
- 30% of an assessment if HMRC sends one to you that is too low and you do not inform them within 30 days
- £400 can be charged if you file a paper VAT return without the previous permission of HMRC
You need to cancel your VAT registration if you are no longer eligible to be registered for VAT. If you are no longer eligible to pay VAT then you must cancel within 30 days otherwise you may be charged a penalty fine.
If your business’s turnover drops below the VAT threshold, then you can contact HMRC to cancel your registration. The deregistration threshold is currently £83,000. If you do wish to deregister from paying VAT and meet the above criteria, you can do so online. The VAT7 form is also available for those that wish to deregister from VAT by post.
Normally it takes 3 weeks for HMRC to approve or reply to your VAT deregistration request. When you hear back from them they will confirm your official deregistration date. This date specifies the date when the reason for your deregistration took effect or the day you requested VAT deregistration if it was a voluntary decision.
It’s important to know, if you should not have deregistered for VAT and continue to turnover more than the current VAT threshold states, HMRC will re-register you. You will also have to pay any VAT that you should have been paying whilst in your unregistered period.
After you have successfully deregistered, you are required to submit one final VAT return. This return must cover the period up to and including the date of your deregistration.
This final VAT return must account for any stock and assets you hold on this date if you could reclaim VAT when you purchased them, or if their combined value is over £1,000. You shouldn’t wait to receive all of your invoices before submitting your final VAT return. Once the invoices arrive you are still able to claim back VAT on anything you bought whilst VAT registered.
Transferring your VAT registration to another business – How to do it?
You are able to transfer your business’s VAT registration to another business. This is a frequent occurrence and often happens when a business is sold to a party who wish to keep using the newly bought business’ current VAT number.
You are able to apply for a VAT registration transfer through your HMRC VAT online portal, or for those that wish to do so by post you’ll need to complete the VAT68 form.
The buyer and seller of the business must inform HMRC of this transaction. The seller will need to cancel Direct Debits that are setup on their online VAT account. The buyer of the business will then be responsible for setting up any new Direct Debits. Normally it will take 3 weeks for HMRC to confirm the transfer of your business.
UK VAT Registration Summary
As you’ve read above there are pros and cons of being registered for VAT in the UK. At the end of the day, it depends on your company’s business model whether it’s beneficial/viable to register for VAT.
Remember, regardless of the effects it has on your business you must register for VAT once your turnover exceeds £85,000, or if you are expecting to exceed the VAT threshold within the next 30 days.
If you’re not capable of filing yourself and don’t want to use an accountant, there are multiple software solutions that can help with your VAT returns and management.