When Must a Business Register for VAT?
Businesses in the UK must register for VAT when their taxable turnover exceeds the VAT registration threshold.
As of April 2024, the VAT registration threshold increased to £90,000. This means a business must register for VAT if the value of its taxable supplies over the previous 12 months exceeds £90,000.
A business should review its turnover at the end of each month. If the total taxable sales for the previous 12 months exceed the threshold, VAT registration is required.
What Counts as Taxable Supplies?
“Taxable supplies” include most goods and services that are subject to VAT in the UK, such as:
- Standard-rated supplies (20%)
- Reduced-rate supplies (5%)
- Zero-rated supplies
However, exempt supplies, such as certain financial or insurance services, are not included when calculating the VAT registration threshold.
Registration Based on Expected Turnover
A business must also register for VAT if it expects its taxable turnover to exceed £90,000 within the next 30 days alone.
For example, if a business signs a contract that will generate more than £90,000 of taxable income in a short period, it must register immediately rather than waiting for the 12-month turnover test.
Can You Avoid Registering for VAT?
If your turnover temporarily exceeds the VAT registration threshold but you believe this will not continue, you may apply to HMRC for an exception from registration.
To request this, you must contact HMRC and explain:
- Why your turnover exceeded the threshold
- Why it will fall below the VAT deregistration threshold (currently £88,000) in the future
- Provide evidence to support your claim
If HMRC agrees that the increase is temporary, they may allow the business to remain unregistered for VAT. However, you must inform HMRC if circumstances change and your turnover rises again.
Benefits of Voluntary VAT Registration
Even if your turnover is below the threshold, you may choose to register for VAT voluntarily.
This can be beneficial because it allows businesses to:
- Reclaim VAT on business purchases
- Recover VAT on equipment, materials, and services
- Potentially reclaim VAT on certain purchases made before registering
Voluntary registration may also improve your business’s credibility with clients, as some businesses prefer working with VAT-registered suppliers.
However, VAT registration also comes with additional responsibilities, including filing VAT returns and maintaining digital records under Making Tax Digital (MTD) rules.
Reclaiming VAT on Purchases Before Registration
If you register for VAT, you may be able to reclaim VAT on certain purchases made before registration, including:
- Goods purchased up to 4 years before registration if still used by the business
- Services purchased up to 6 months before registration
The rules can be complex, so it is important to check eligibility before submitting a claim.
Key Points to Remember
- The VAT registration threshold is £90,000.
- Businesses must monitor turnover over a rolling 12-month period.
- Registration may also be required if turnover will exceed the threshold within the next 30 days.
- Businesses can apply for temporary exemption from registration if the increase is short-term.
- Voluntary registration may allow businesses to reclaim VAT on expenses.
Need Advice on VAT Registration?
Deciding whether or when to register for VAT can have a significant impact on your business’s cash flow and pricing.
At Merranti Accounting, we help businesses:
- Determine when VAT registration is required
- Apply for exceptions from registration
- Set up VAT-compliant accounting systems
- Maximise VAT recovery on business expenses
If you’re unsure whether your business should register for VAT, contact us for expert advice.
