When do you need to register for VAT? A guide for small businesses

Running a small business can be rewarding but it isn’t without its challenges, with countless decisions to make and responsibilities to manage.

One of these crucial decisions is determining if and when you need to register for Value Added Tax (VAT).

Understanding VAT and its registration threshold is essential for small business owners to stay compliant with tax regulations and ensure their financial health.

In this comprehensive guide, we’ll walk you through everything you need to know about VAT registration, from what VAT is, to how to register, and the potential advantages of staying just below the threshold.

What is VAT?

Value Added Tax (VAT) is a tax added to products and services at various points during production and distribution.

Essentially, businesses act as intermediaries in this process, collecting the VAT on behalf of the government from their customers.

They then pass on this collected tax to the tax authorities.

This mechanism allows the government to receive a portion of the money spent by consumers on VAT-liable goods and services, helping to fund public services and government operations.

VAT registration threshold

The VAT registration threshold is the point at which your business is required to register for VAT. This threshold is not a fixed amount and can change over time, so it’s essential to check that you’re up to date.

The threshold for VAT registration in the UK is currently £85,000 of taxable turnover over a 12-month period.

It’s crucial to monitor your taxable turnover to ensure you register for VAT when you surpass the threshold. Failing to register on time can result in penalties (more on this later).

VAT registered vs. non-registered: Legal requirements and administration

Being VAT registered comes with both advantages and responsibilities. When you’re VAT registered, you must:

– Charge VAT on your sales

– Keep VAT records for at least six years

– Submit regular VAT returns to HMRC

– Keep your business details up-to-date with HMRC

Additionally, VAT registered businesses can issue VAT invoices to their customers. For more information on VAT invoices, check out our related article here.

On the flip side, if your business remains below the VAT threshold, you are not obligated to charge VAT or go through the administrative processes mentioned above. 

Staying below the VAT threshold

Some businesses, particularly sole traders and small enterprises, strategically aim to stay just below the VAT threshold. This decision can help them avoid the complexities of VAT administration. 

However, it’s essential to weigh up the benefits of staying below the threshold against the potential advantages of being VAT registered. Some important points to consider include:

  1. Loss of Reclaiming VAT

Unregistered businesses cannot reclaim VAT on expenses, increasing operational costs and reducing profitability.

  1. Credibility Impact

VAT registration can enhance your business’s credibility. Avoiding registration might make potential partners and clients question your legitimacy.

  1. Growth Limitation

Deliberately staying below the VAT threshold to avoid registration may hinder business expansion.

What happens if I don’t register for VAT after meeting the threshold?

Failing to register for VAT when your business surpasses the threshold can lead to serious consequences including:

  1. Penalties and Interest

Late VAT registration may result in penalties and interest charges from HM Revenue and Customs (HMRC), depending on the extent of the delay and the outstanding VAT.

  1. Tax Investigations and Legal Consequences

Persistent non-compliance can lead to tax investigations, fines, and even legal action, particularly in cases of fraud or evasion.

How to register for VAT

You can register for VAT online, or use an accountant to do this on your behalf.

Using an Accountant

Many small business owners find VAT registration and ongoing compliance daunting. If you’d rather focus on running your business and leave the tax-related tasks to the experts, hiring an accountant is a wise choice. They can handle the entire registration process on your behalf and ensure your business is compliant with VAT regulations.

Online Registration

Registering for VAT can be done online through the official government website. It’s a relatively straightforward process where you’ll need to provide essential business information, such as your company details, turnover figures, and your preferred VAT scheme.

How to pay VAT

Once you’re registered for VAT, you’ll need to collect VAT on your sales and pay it to HM Revenue and Customs (HMRC). There are two primary methods for handling VAT payments:

Accountant Assistance

Your accountant can calculate how much VAT you owe based on your sales and expenses. They can then submit VAT returns and payments on your behalf, ensuring accuracy and timeliness. This can be a significant time-saver and reduce the risk of errors.


Alternatively, if you prefer to manage your VAT payments independently, you can calculate and pay your VAT using accounting software or HMRC’s online portal. Be diligent with your record-keeping to prevent mistakes.

Deregistering for VAT

If, for any reason, your business’s taxable turnover falls below the VAT threshold, you may consider deregistering for VAT. You can do this through the HMRC website or with the assistance of your accountant. Be aware that there are specific rules and timeframes for deregistration, and you should adhere to them to avoid penalties.

VAT registration

VAT registration is a crucial aspect of managing your small business’s finances. Staying informed about the VAT registration threshold, understanding how to register, pay, and manage VAT, and considering the pros and cons of registration are all essential steps in maintaining compliance with tax regulations. 

Whether you choose to handle VAT yourself or seek the expertise of an accountant, staying on top of your VAT obligations will contribute to the financial health and success of your business.

How we can help

At CRM Accountants, we are dedicated to helping you navigate the complex world of business finance. 

Whether you need assistance with the VAT registration process, understanding VAT regulations, or ensuring your tax obligations are met, our team can provide personalised support tailored to your specific business requirements. 

Remember, VAT registration is a critical aspect of financial compliance, guaranteeing your business remains on a secure financial path.

For guidance on VAT registration or any other accounting services for your business, you can count on CRM. Feel free to complete our contact form or call 01865 379272.


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