United Kindgom Value Added Tax (VAT) Registration

How to register for VAT in the United Kingdom?

As a business owner in the UK, understanding and complying with Value Added Tax (VAT) regulations is crucial. This article will guide you through the process of UK VAT registration, offering a comprehensive look at who needs to register, when and how to register, and the implications of registering for VAT.

Table of Contents

1. Understanding the United Kingdom VAT 

2. Registration requirements

3. Calculating VAT taxable turnover

4. VAT-exempted goods and services

5. Registration process

6. Post-registration tasks

7. VAT registration advantages and disadvantages

8. Late registration penalties 

9. Registration timeline

10. VAT in Northern Ireland

Understanding Value-Added Tax in the United Kingdom

VAT is a tax collected by businesses from their consumers on behalf of His Majesty's Revenue and Customs (HMRC) on certain goods and services at each stage of production/provision. Businesses pay VAT on goods and services that they purchase and collect VAT on goods and services they provide. There are 3 VAT rates in the United Kingdom: 

1. Standard rate (20%): Applied to most goods and services

2. Reduced rate (5%): Applied to certain goods and services under specific circumstances

3. Zero rate (0%): A special category of goods that allows manufacturers to claim credits for VAT paid on inputs, but does not levy VAT on the final goods themselves.

When do you need to register for VAT in the UK? 

VAT registration is necessary when your total VAT taxable turnover for the past 12 months exceeds £85,000, or you expect it to exceed £85,000 in the next 30 days.

You should also be registered for VAT if you buy goods and services that exceed £85,000 in 12 months or are expected to exceed it in 30 days. 

Non-UK businesses must register for VAT (irrespective of VAT taxable turnover) if they meet the following criteria: 

1. The business operates outside the UK. 

2. The business is based outside the UK.

3. Goods or services are supplied to the UK (or expected to be within the next 30 days).

If you buy or take over a business, you must register for VAT if the combined taxable turnover of the new business and your existing business is over the threshold.

Businesses that only sell VAT-exempt goods or services do not need to register for VAT. We will discuss this below.

How to calculate VAT taxable turnover: 

Turnover comprises the total value of non-exempt goods and services sold, including: 

1. Zero-rated or essential goods. 

2. Loaned or rented goods to customers. 

3. Business goods that are used for personal purposes. 

4. Bartered, part-exchanged, or gifted goods. 

5. Services received from overseas businesses are subject to "reverse charge." 

6. Self-performed building work exceeding £100,000.

What goods and services are VAT-exempt? 

VAT cannot be charged on exempt goods or services, which must still be recorded in your business accounts. Suppliers of VAT-exempt goods may still claim credits for VAT paid on inputs.

VAT-exempt items include:

1. Financial services, investments, and insurance

2. Garages, parking spaces, and houseboat moorings

3. Property, land, and buildings

4. Education and training

5. Healthcare and medical treatment

6. Funeral plans, burial, or cremation services

7. Charity events

8. Antiques

9. Gambling or lottery tickets

10. Sports activities

Click here to access the full list of exempted goods and services. 

Goods and services that are “out of scope”: 

Out-of-scope goods and services are exempt from the VAT tax system, meaning VAT cannot be charged or reclaimed. Examples include:

1. Goods or services purchased and used outside the UK 

2. Statutory fees, such as the London congestion charge 

3. Goods sold as part of a hobby (e.g., stamp collections)

4. Donations to charity without receiving anything in return

How to Register for VAT? 

Registering for VAT is typically done online through the HMRC website (Click here). 

Note that your business must charge VAT on sales and is eligible to reclaim VAT on items you bought from the date of registration. 

To register a limited company for VAT, you'll need: 

1. Company registration number

2. Business bank account details

3. Unique Taxpayer Reference (UTR)

4. Annual turnover information

Additional details required for registration include: 

1. Self Assessment information. Corporation Tax details

2. Pay-As-You-Earn (PAYE) data 

To register as an individual or partnership for VAT: 

1. National Insurance number

2. Identity document (e.g., passport or driving license)

3. Bank account details

4. Unique Taxpayer Reference (UTR), if available

5. Annual turnover information

Additional details required include: 

1. Self Assessment return

2. Payslips

3. P60

Using Commenda to register for UK VAT

To simplify the process, you find an accountant on Commenda to submit your VAT Returns and deal with HMRC on your behalf. 

Book a free UK VAT consultation call with Commenda →

What happens after UK VAT registration? 

Upon registering for VAT, you will receive: 

1. A 9-digit VAT number for inclusion on all invoices. 

2. Instructions to set up your business tax account for accessing the VAT online service. 

3. Details regarding your first VAT return submission and payment. 

4. Confirmation of your registration date (the effective date of registration). 

This information will be sent to you via post. After VAT registration you need to:

• Add VAT to your prices

• Issue VAT invoices to your customers

• File VAT returns and pay any VAT due to HMRC

• Keep digital VAT records and a VAT account

What are the advantages and disadvantages of VAT registration? 

While most businesses will pass the threshold to register for VAT eventually, all businesses have the option to register for VAT preemptively. Voluntary VAT registration offers several advantages for entrepreneurs and small businesses: 

Advantages of UK VAT registration:

1. VAT-registered businesses can recover VAT paid on eligible goods and services purchased by your business. 

2. Preemptive registration before reaching the £85,000 turnover threshold can save time and effort in adjusting prices to include VAT rates. 

Disadvantages of UK VAT registration:

1. Higher prices: Including VAT in product/service prices might make them appear more expensive to customers. 

2. Additional administrative tasks: Once registered, you must file VAT Returns, maintain VAT invoices/receipts, and keep VAT accounting records.

What happens if my business is late to register for VAT?

If you register late, you must pay VAT on any sales made since the date you should have registered. Keep in mind that this usually involves back-paying on invoices that you have already issued–you will not likely be able to collect the VAT cost from your customers, so your business will likely have to pay out of pocket.

Staying on top of your VAT threshold is important in the UK. Commenda’s Compliance Monitor takes the guesswork out of your UK VAT exposure.

How long does the VAT Registration Process Take? 

The VAT registration process generally takes four to six weeks. Once the registration is granted, a unique UK VAT number is allocated to the company. 

What if I am based in Northern Ireland and sell goods or services that at VAT-exempt? 

In this case, you will need to register for UK VAT only if you buy goods or services for more than £85,000 from EU VAT-registered suppliers to use in your business.

In case you’re looking for a way to simplify your UK VAT registration, you can find an accountant on Commenda to submit your VAT Returns and deal with HMRC. 

Book a free UK VAT consultation call with Commenda →