For many small businesses, the first brush with VAT arrives quietly: sales creep upwards, and one month the question appears. Do we have to register? This guide walks through the rules published by GOV.UK so you can spot the moment early and plan for it.
The registration threshold
According to GOV.UK, you must register for VAT if your total taxable turnover for the last 12 months goes over £90,000. The test is rolling, not tied to the tax year, so it is worth checking your figures at the end of every month rather than once a year.
There is also a forward-looking test. You must register if you expect your taxable turnover to go over £90,000 in the next 30 days alone. A single large contract can therefore trigger registration even if your previous twelve months were modest.
Taxable turnover, not just profit
The threshold looks at taxable turnover, which is the value of what you sell that is not exempt from VAT. It is a measure of sales, not profit. A business with thin margins can still cross the line, so keep your sales records tidy and up to date.
Your deadlines
The deadline depends on which test you met:
- Turnover over the last 12 months: register within 30 days of the end of the month in which you went over. Your effective date of registration is the first day of the second month after you went over.
- Expected turnover in the next 30 days: register by the end of that 30-day period. Your effective date is the date you realised the turnover would exceed the threshold.
A short worked example helps. Suppose your rolling twelve-month taxable turnover passes £90,000 during March. You would have until 30 April to register, and your effective date would be 1 May. These are illustrations of the stated rules; always confirm your own dates with HMRC.
Registering voluntarily
You do not have to wait. GOV.UK says you can choose to register if your turnover is below £90,000, which is known as voluntary registration. Some businesses do this so that they can reclaim VAT on purchases, or because customers expect to see a VAT number. Others prefer to stay unregistered for simplicity. The right answer depends on who your customers are and what you buy, so it is worth talking it through with your accountant.
What if you register late?
Late registration is costly. GOV.UK states that you must pay VAT on sales made since the date you should have registered, and you may also face a penalty. In practice, that can mean paying VAT out of your own pocket on sales where you never charged it to the customer.
Temporary spikes and exemptions
If your turnover has gone over the threshold only temporarily, you can apply for an exception from registration. HMRC will write to tell you whether you have one; if not, they will register you. Separately, if most of what you sell is zero-rated, you can apply for exemption from registration, online or by post using form VAT1. HMRC will again confirm in writing, and if the application is rejected you will be registered.
Businesses based outside the UK
Businesses established outside the UK must register regardless of turnover if they supply goods or services to the UK, or expect to within the next 30 days.
A simple monthly habit
- At each month end, add up your taxable sales for the last 12 months.
- Compare the total with £90,000.
- Look ahead 30 days at any big orders or contracts.
- Note the result in your records, even when nothing needs doing.
Writing it down creates a record you can show if HMRC ever asks how you monitored your position.
Next steps
If you are close to the threshold, read the full guidance on GOV.UK and speak to a qualified adviser about your own circumstances. This article is general information only and is not tax advice.
Source: GOV.UK, "Register for VAT". Figures correct at the time of writing; check GOV.UK for the latest.