Frequently asked VAT registration questions and answers

In this blog, we use the term ‘businesses’ often. But the word ‘businesses’ also covers sole traders. 

Most businesses know that the threshold for compulsory VAT registration is a taxable annual turnover of £85,000. What this figure is made up of can often cause confusion on when and how a business should register for VAT.  With all the advice, it can be difficult to know what to do.

Here, we will summarize obligations for VAT registration with a few answers to the most frequently asked questions by businesses.  

1. Do I need to register for VAT?

If your business records a VAT taxable turnover over £85,000 over a 12-month period you are required to register for VAT.  You should also register for VAT if you expect your taxable turnover to be more than £85,000 in the next 30 days.  

What is taxable turnover? - this figure is the total of all goods/services that you have sold that are not VAT exempt such as books, news papers, most food goods and other items that are zero rated (charge at a 0% VAT rate) 

What is a 12-month period? –  the threshold applies to any 12-month period not necessarily your financial year. This is because a financial year does not provide the full picture and it is possible that your business could exceed the threshold either side of your year end.  

2. When must I register for VAT?

In most businesses you must register for VAT within 30 days of the end of the month that your taxable turnover goes over the £85,000 threshold.  However, some sole traders that sub-contract for larger businesses may be required to register for VAT immediately as it may be a requirement that is laid out in their contract.  

For the purpose of this blog we will use it to cover a standard business, so….. 

Scenario 1 – if your January to December taxable turnover is more than £85, 000 you will be required to register for VAT, therefore you will need to register for VAT by the end of February. Your “effective date of registration” will be the first day of the following month in this scenario 1st March.  

Scenario 2 – if your taxable turnover is expected to go over the £85,000 in the next 30-days, then the timeline for registration is a bit different. You are required to register for VAT by the end of the 30-day period and your “effective date of registration” is backdated to the date at which you realised you would exceed the threshold. If you know on 1st May that in the next 30-days your sales will go over £85,000 then the effective date of registration will be 1st May – no matter what date you actually register. 

3. Can I register for VAT voluntarily and could it be beneficial?

Registering early ensures that when the turnover does go over the threshold, you will not receive any penalties or backdates bills heading your way. 

Businesses with taxable supplies beneath the VAT threshold can decide to register voluntarily, for some small businesses, this can help when they are dealing with larger VAT registered clients. 

It can also be beneficial to apply an earlier “date of registration” for businesses that are required to register. 

There are also times where a business chooses to register on a retrospective basis of up to four years this allows then to reclaim input tax for customers who are themselves VAT registered and accepting VAT only invoices. 

4. What if I do not register for VAT when I’m supposed to?

Failing to inform the HMRC that you have gone over or expect to the VAT threshold in the mandatory timelines you are likely going to end up receiving penalty fines as well as backdated payments.  Some of the penalties you may face from the HMRC are a “failure to notify”, a “late registration” and in some cases a “civil evasion” charge.  

It has also been known that the cost of backdated VAT payments can be even more hefty.  HMRC will look into recovering VAT from the date that registration should have been completed, even though you had not been charging VAT on the goods/services that you sold. 

It is not worth risking it could leave you with a big dent in your finances and cashflow! 

5. How do I register for VAT?

Most businesses can register online this includes partnerships.  When registering online you will register and create a VAT online account (known as a Government Gateway Account).  Once registered you will receive a VAT number, you can sign up for an online account and select the option to submit VAT. 

You will also be able to use an agent. You can appoint and agent accountant/bookkeeper to submit your VAT returns and deal with HMRC on your behalf. 

Still looking for answers? 

There is only so much that can be covered in a blog and there is a lot more to know about VAT and VAT registration. If you find you’re still looking for answers, want to discuss your registration, have questions about other VAT issues, or want us to become your agent just drop us a line on hello@mercuryaccounting.co.uk 

** disclaimer answers to the questions were correct at the date they were written. We suggest that regular updates on VAT on the HMRC website is recommended or if in doubt just drop us an email