VAT (Value Added Tax), is a business tax levied by the government. It is added to the cost of nearly every product or service you buy in the UK. VAT registered businesses act as unpaid tax collectors, meaning they must add VAT to their prices and send this money on to HMRC. Companies who bring in a certain amount of revenue or more are required by law to register for tax, which means they collect VAT on behalf of the government.
You must register for VAT if your annual VAT taxable turnover is £85,000 (20/21) or more. But how do you register? Some businesses must use a postal form, while others can complete their registration online. Which form you need to use, and how you submit it, depends on your business activities. This guide will take you through exactly how to register.
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How do I register my business for VAT?
There are several ways you can register your business for VAT. Most companies are eligible to apply for VAT by registering themselves online with HM Revenue & Customers. Alternatively, you can send in a paper form.
Unless you have unusual circumstances, your business can register with HMRC online. Recently, this includes partnerships or a group of companies who are registering under one VAT number. To register online, create a VAT online account, or a Government Gateway account. After your registration is complete, you will use this same account to submit VAT returns to HMRC.
Registering using a paper form
If you prefer, you can register using a paper form, which you can find on the government website. You will need to print it, fill it in by hand and return it by post using the address on the website. You must register by post using the VAT1 if any of the following apply:
- You want to apply for a registration exception
- You are joining the Agricultural Flat Rate scheme
- You are registering the divisions or business units of a corporation under separate VAT numbers.
You must use different paper forms depending on the type of business you are and the type of business activity you undertake. The following circumstances require different forms:
- If you are an EU business ‘distance selling’ to the UK, you should use form VAT1A. If you’re an EU business selling goods to non-VAT registered customers in the UK, and you have a turnover of over £70,000 (20/21), this applies to you.
- If your business makes acquisitions of goods to bring into the UK from other EU states, and if you have passed the acquisition threshold, you must also register for VAT. In this instance, you would need to use the VAT1B form. The acquisition threshold is also £85,000 (20/21).
- If you make relevant supplies in the UK (no threshold) you must complete the form VAT1C. This form is designed for completion on-screen, after which you can print it out and send it to HMRC.
When to register
You must register for VAT if your annual turnover exceeds £85,000 (20/21), or if your turnover is likely to reach this threshold within the next 30 days. If your annual turnover is beneath this threshold, you can also choose to register for VAT, which can work out more profitable for some companies. Businesses may choose to register for VAT to:
- Cut costs. If you register for VAT, you can reclaim the VAT you have paid on your business expenses. If you have a lot of outgoings, this might significantly boost your profits.
- Reputation boost. VAT registered companies have more credibility in the business world. It makes a company seem more legitimate, larger, and more stable. Many companies are more likely to accept contracts with VAT registered businesses, too, which means you can attract more clients.
- Retrospective gain. One of the greatest advantages of registering for VAT is that you can claim back VAT on transactions made before the date you registered. If you still own the items you bought before your registration date, you can claim back the VAT for these items in your first tax return, which can be a helpful cash injection. You can gain retrospectively on any items you purchased within the four years up to the date of your VAT registration.
While there are significant benefits that come with registering voluntarily for VAT, it’s worth considering the downsides:
- Increased prices. Registering for VAT means you have to start charging VAT to your customers, which means increasing your prices. If you sell to other VAT registered businesses this might not affect your sales, as they’ll be able to claim back the VAT they pay to you. If you sell to individuals, however, it’s worth weighing up whether the price increase could lose you sales.
- Admin heavy. Registering for VAT means more accounting, which can be particularly taxing for smaller businesses, who might lack sufficient resources or personnel. You need to have meticulous records of all your income and expenses and have to deal with submitting a VAT return every quarter.
After submitting a form
If you submit a paper form, namely the VAT1A, VAT1B or VAT1C, you will receive a VAT number from HRMC in the post. Once you’ve got this number, you can register for an online VAT account, after which you will receive a VAT certificate of registration, known as a VAT4. This certificate will either appear within your VAT online account if you registered online or through the post if you registered with a paper form or via an agent. Your VAT certificate includes the following:
- Your VAT number
- Your ‘effective date’ of VAT registration
- Details of when you need to submit your first VAT return and payment.
Your VAT certificate is an important document. You need to keep it safe with your other business records, as a VAT inspector may ask for it at any time as it provides evidence of your VAT registration.
How long will it take to receive a VAT certificate?
HMRC aims to process the majority of applications within ten working days of receiving it. Almost all applications are processed within a month. However, in rare cases, it has been known for businesses to wait six months for a certificate. Delays tend only to occur if HMRC needs further information or needs to verify any information provided.
What do you do while you wait for the VAT certificate?
Regardless of when you receive your VAT registration number, you must account for VAT from the effective date of VAT registration. From this date, you must start accounting for VAT on sales of all taxable goods and services, not from the date you applied for registration or from the date you receive your certificate.
However, until HMRC confirms your VAT number, you cannot explicitly charge VAT. This means you cannot show it on any invoices as a separate line. HMRC, therefore, advises businesses to increase their prices by the current VAT rate, which is currently 20% for standard goods (20/21).
When you do this, you should let your customers know of the situation, and inform them that once you receive your VAT number, you will reissue their invoices, showing both your VAT number and the extra amount they paid shown explicitly as VAT. By reissuing invoices displaying this information, you ensure that VAT-registered customers can reclaim the VAT they spent on this item.
The effective date also indicates the date from which you can start reclaiming any input tax you have paid. To do this, make sure you start keeping records of all the invoices on which your suppliers have charged you VAT.
How to apply for registration exception or exemption
If you trade solely in zero-rated VAT items and you exceed the £85,000 threshold (20/21), you must apply for exemption from registration. To do this, you must use the same form as if you were registering your business for VAT, using the VAT1 form. In this case, you must submit the form via post.
All businesses must register within 30 days of exceeding the threshold. However, if you exceed the limit only temporarily, perhaps due to an unexpected spike in sales, you can write to HMRC and explain your situation. You must give a reason for why you don’t expect your taxable sales to exceed the £83,000 (20/21) deregistration threshold in the next 12 months. If HMRC agrees with you, they will make an exception for you in writing. If they don’t accept your notification, you will have to register as per above.
Have I exceeded the threshold?
There are two factors to consider when working out whether you have exceeded the VAT registration threshold. The first is whether your taxable turnover exceeds the limit, and the second is determining at what point the VAT registration threshold was exceeded.
Calculating taxable turnover
We now know that all businesses who earn over the threshold have an obligation to apply for VAT registration in the UK. But what does your taxable turnover account for?
A business’ VAT taxable turnover includes the value of any goods or services which they supply within the UK, unless they are exempt from VAT. Companies must also include any zero-rated supplies. When calculating taxable turnover, you should not include the sale of any capital assets.
Determining the date you exceed the VAT threshold
The crucial detail relating to the taxable turnover limit is that the 12-month period applies to any rolling 12-month period, and not necessarily to your accounting period, the tax year or the calendar year. Similarly, if you expect your VAT taxable turnover to surpass the VAT threshold in the next 30 days, you are also obliged to register.
What is the deadline for registering?
How you exceed the VAT threshold will affect the timeline you have for registration. If you reach the VAT threshold across a 12-month period, you must register within 30 days of the end of the month that saw you exceed the threshold.
You have less time if you anticipate exceeding the limit in the next 30-day period alone. In this case, you must register for VAT by the end of those 30 days. Your effective registration date is then backdated to the date at which you realised you would exceed the threshold.
Remaining tax compliant
Registering for VAT is relatively straightforward. However, it’s after registration that VAT can get significantly more complicated. Being VAT-registered means that you have to submit a VAT return, usually quarterly, which requires meticulous record-keeping. You will need to keep a record of all receipts of purchase on which you have paid VAT as well as all your company invoices where you have collected VAT. Other relevant documents to keep hold of are bills, separated business transactions, bank statements, receipts and a record of all the supplies you acquire or make.
All these documents will be necessary for filling out the following information in your tax return:
- Your total sales and purchases
- The amount of VAT you owe
- The amount of VAT you can reclaim
- What your VAT refund from HMRC is.
Remaining VAT compliant for large businesses can be a full-time job. Penalties exist for late filing, late payment or for supplying the wrong information. As it’s complicated, time-consuming and admin-heavy, many businesses choose to hire an accountant to stay on top of their VAT. Another option is to use accounting software, which can automate data capture and reporting, saving you both time, money and minimising the risk of human error.
What happens if I register late?
If you fail to inform HMRC that you have exceeded or expect to exceed the VAT threshold, you could find yourself liable to pay a penalty fine. You may also need to backdate your VAT payments. Most penalties issued are a ‘failure to notify’ penalty, but you may also incur a ‘late registration’ penalty or, in a few cases, a ‘civil evasion’ charge.
It’s well worth registering on time, as the biggest blow comes from backdated VAT payments. HMRC will want to recover VAT from the date that you should have registered, meaning you will be liable to pay all the VAT you should have received from all sales made from that date. If you haven’t been registered for VAT, you won’t have charged your customers VAT on all these sales, which means this amount will come out of your own pocket.
How to deregister for VAT
If your annual taxable turnover drops below the threshold, you may be able to deregister. Currently, the deregistration threshold is £83,000 (20/21), below which you can choose to deregister for VAT. You can do this online through your Government Gateway account, or you can complete and return the VAT7 form by post.
You must deregister for VAT if you are no longer eligible for VAT registration. Instances in which you must cancel your registration include:
- If you stop trading or making VAT taxable supplies
- If you join a VAT group.
In these cases, you must cancel your registration within 30 days, or you may incur a penalty charge.
The VAT7 is designed to be filled in on-screen. You can then print the completed form and send it off the HMRC.
HMRC will then confirm your official cancellation date, which will either be the date when your reason for cancelling took effect, such as the day you ceased trading or the date you requested to cancel if your cancellation was voluntary. Confirmation from HMRC usually takes approximately three weeks. Be sure to keep hold of all your VAT records for six years after you deregister, as tax inspectors may still request to see your papers in this time. When you cancel your registration, you will have to complete a final VAT return for the period leading up to the cancellation date.
Final thoughts & FAQs
VAT registration is a legal requirement for many businesses. Keeping up to date with your finances is essential to monitoring your taxable turnover and making sure you register on time if you exceed the registration threshold.
Registering for VAT is relatively straightforward. The greatest difficulty comes after registration, when you need to start keeping detailed records of all your transactions.
Still have questions? Find answers to common VAT registration questions in the list below.
Does it cost money to register for VAT in the UK?
For companies based in the UK, VAT registration is free. However, there can be fees for overseas companies looking to register for VAT in the UK. These vary between suppliers.
Re-registering for VAT
If you deregister for VAT because your sales fall below the deregistration threshold, you must re-register if you exceed the registration threshold at any time in the future. The exception, however, is within the 12 months after deregistering. VAT registration rules under the Value Added Tax Act 1994 stipulate that when considering a person’s taxable turnover to determine whether or not they need to register, they should generally exclude any turnover from a previous period of registration.
What happens if I don’t register for VAT?
If you fail to notify HMRC that your taxable turnover in any 12-month period has exceeded the threshold, you could face an enormous expense. You will be liable to pay all the VAT you’d owe had you registered from the date you were supposed to. If HMRC finds that you have avoided registering for VAT, you could even face a civil evasion penalty.
What is the penalty for late VAT registration?
How much you have to pay as a penalty depends mostly on how late you were in registering. HMRC charge the fine as a percentage of the VAT due since the date your business should have registered, until the time you eventually registered. The minimum penalty is £50 with most penalties being significantly more.
Can companies check my VAT registration?
Yes. All companies receive a VAT registration number when they register for VAT, which is a unique code that proves their registration with HMRC. For UK based businesses, this code begins with ‘GB’ and is nine digits long. Anybody can check your VAT registration number either by calling HMRC on their VAT helpline or by using the website VIES, which allows you to check the VAT number of any EU business.
It is also a good idea to check the VAT registration number of any company with which you choose to work. If you enter an invalid VAT number on your VAT return, HMRC could reject your tax input claim.
Can I transfer VAT registration?
You can transfer VAT registration, say if you purchase a company. In this case, both you and the seller must notify HMRC that you would like to transfer the registration. You can complete this request through your online Government Gateway account, or by using the form VAT68. You will usually hear back from HMRC within three weeks.
Will I get a visit from a tax inspector?
Once you have registered for VAT, you may receive notification of a VAT inspection at any time. During this visit, the inspector will want to see your VAT records. You must, therefore, keep detailed records of your business activities and finances, so that a VAT officer can ensure you are paying and reclaiming the correct amount.
Usually, you will receive written notification from HMRC, which generally requests you to phone them. After discussing your records over the phone, they may wish to visit your site. If this is the case, they will pass your details to the visit booking team, who will arrange a suitable date and time with you.
On rare occasions, HMRC will visit without any prior warning. After a visit, HMRC will provide details of the inspection and any actionable improvements you need to make in writing. If an error is found, you may request a review from a different officer, or you may appeal within 30 days.