VAT:
when you must register, and when you might choose to

Your sales are growing and someone has mentioned VAT. The question isn’t your profit or your accounting year: it’s your taxable turnover over any rolling 12 months. Here’s how to check it, and what happens once you’re registered.

The £90,000 test

You must register for VAT if your taxable turnover for the last 12 months goes over £90,000. Taxable turnover is everything you sell that isn’t exempt from VAT, including zero-rated sales.

It’s a rolling test. At the end of every month, add up the last 12 months. It doesn’t matter when your accounting year ends.

If you go over:

• you must register within 30 days of the end of the month you went over
• you’re registered from the first day of the second month after you went over

For example, if your rolling total goes over £90,000 in March, you register by 30 April and you’re VAT-registered from 1 May.

The next 30 days test

You must also register if you expect your taxable turnover to go over £90,000 in the next 30 days alone, for example because you’ve won a large contract. In that case you register by the end of those 30 days, and you’re registered from the day you realised.

If you only go over the threshold briefly, HMRC may agree an exception so you don’t have to register. You have to ask, and show why you expect your turnover to drop back.

If you register late

You’ll owe VAT on your sales from the date you should have been registered, whether or not you charged it to your customers. You may get a penalty as well, depending on how much is owed and how late you are. That’s why it’s worth checking the rolling total every month once you’re close.

Registering voluntarily

You can register even if your turnover is under £90,000. It can make sense if:

• you can reclaim VAT on what you buy for the business
• your customers are mostly VAT-registered businesses who can reclaim what you charge them

It doesn’t suit everyone. If you sell mainly to the public, adding 20% to your prices, or absorbing it, can hurt. Run the numbers both ways first.

Once you’re registered

Charging VAT. You add VAT to your sales at the right rate and show your VAT number on your invoices.

Making Tax Digital for VAT. All VAT-registered businesses must keep digital VAT records and send returns through software that works with HMRC’s systems, unless they’re exempt.

Returns. Most businesses send a return every quarter. The return and payment are usually due one calendar month and 7 days after the end of the period, even if that falls on a weekend or bank holiday.

Records. Keep VAT records for at least 6 years, or 10 years if you use the One Stop Shop scheme for sales to consumers in the EU.

Leaving. If your taxable turnover drops below £88,000, you can ask to deregister.

What you need to do

• Add up your taxable turnover for the last 12 months, and repeat it every month.
• Check whether any single contract could take you over £90,000 within 30 days.
• If you go over, register within 30 days of the end of that month.
• Decide how your prices will change once you charge VAT.
• Choose software that works with Making Tax Digital for VAT before your first return.
• If you’re under the threshold, weigh up voluntary registration with your own figures.

Key dates

• End of every month: check your rolling 12-month taxable turnover.
• 30 days after the end of the month you went over: deadline to register.
• First day of the second month after you went over: you’re VAT-registered from this date.
• 1 month and 7 days after each VAT period: return and payment due.