Established business trading in the UK
Should you register for UK VAT?
Many businesses end up facing penalties because they struggle to register for UK VAT at the right time or not at all. This is common because businesses do not understand when they are required to start accounting for VAT on their sales, especially if their supply chains or business activity changes.
Below we’ve provided some guidance on how the UK’s VAT registration rules work, to help you start to calculate and work out when an application might have to be made to HMRC. Please note that this is focussed on businesses that are established in the UK and there are different considerations for those which are based overseas.
1. When do I need to register for UK VAT?
A UK established business is obliged to register for UK VAT once its taxable turnover reaches the VAT registration threshold. As of 1 April 2024 the VAT registration threshold is £90,000.
The taxable turnover of a business is based on its value of taxable supplies only – so those supplies that are:
- made in the UK
- subject to the standard rate of VAT (20%), the reduced rate of VAT (5%) or the zero rate (0%) of VAT.
2. How do I calculate my effective date of UK VAT registration?
There are two tests for consideration in order to understand if your business has gone above the VAT registration threshold and hence needs to register.
i. The “Look Back” test
For this test you must review the taxable turnover of the business across the past 12 months. It should be performed on a rolling 12-month basis and when the total taxable sales for a 12-month period exceed the registration threshold, HMRC must be notified. This should happen within 30 days of the end of the month that you exceed the threshold in. From the first day of the following month, the business must start accounting for VAT on its supplies.
Example: ABC Ltd exceeds the £90,000 threshold on 3 September for the first time. It must notify HMRC by 30 October and ABC Ltd’s effective date of registration will be 1 November.
ii. The “Look Forward” test
In this test the taxable turnover expected in the next 30 days must be checked. If in the next 30 days its expected that the threshold will be breached (due to a large order, for example), the business needs to register for VAT from that date. VAT must be accounted for on those future supplies and HMRC be notified within 30 days of the date when the business realised it would exceed the VAT registration threshold.
Example: XYZ Ltd enters into a contract for £95,000 on 1 October. It must submit its VAT registration application by 30 October and XYZ Ltd.’s effective date of registration will be 1 October, so it will need to account for VAT on all its supplies from this date.
3. Can I voluntarily register for UK VAT?
If a business has not yet breached the £90,000 VAT registration threshold, it can still voluntarily apply to be VAT registered. We’ve shared below some pros and cons to be considered before doing this.
| Advantages of Voluntary VAT Registration | Disadvantages of Voluntary VAT Registration |
| When a business is VAT registered then VAT incurred on costs can be reclaimed on most goods and services purchased for the furtherance of business. VAT on goods purchased up to four years before the registration date (and services purchased six months prior to the VAT registration) can be successfully recovered provided the conditions for VAT recovery are met. | Charging VAT on your products/services might be unappealing to customers who are not VAT registered. |
| If customers of the business are VAT registered, they will be able to reclaim the VAT you charge them, so it won’t be an additional cost. |
As the VAT registered business will need to start preparing and submitting VAT returns which involves following strict VAT compliance guidelines, the administrative burden will increase. At Crowe we help to facilitate the process once your business is VAT registered. |
| Holding a UK VAT registration could give a competitive edge, such as evidencing that it is a large and substantive business which might be reassuring to customers and suppliers and appealing to investors. |
4. If I purchase services from overseas, will this impact my obligation to register for UK VAT?
If a UK established business purchases services from a business located outside of the UK, the reverse charge may be applicable. The reverse charge is a mechanism in which the customer will be responsible for accounting for UK VAT due on a supply. The supplier in this case would not have to include VAT in its invoices nor register for UK VAT.
Whether a reverse charge is needed will depend on the nature of the services provided. Where it does, the net value of invoices subject to the reverse charge count towards the taxable turnover of a UK business when considering if it breaches the registration threshold. Therefore, receiving a number of such supplies may impact when a business needs to register for UK VAT.
5. What happens if I don’t VAT register when I need to?
If a business does not notify HMRC of its obligation to register for UK VAT at the right time, HMRC may charge a late VAT registration penalty.
The penalty is calculated as a percentage of the ‘potential lost revenue’ i.e. the amount of VAT that arises because of the late notification. HMRC will determine the rate of penalty to be charged – from a minimum of 0% up to a maximum of 100%. The percentage applied depends on several factors, including the reason for the late notification (HMRC calls this the behaviour), whether the failure to notify is disclosed before HMRC finds it and how much assistance is given to HMRC.
At Crowe we are happy to organise an initial call to talk through your business activity and help you understand your VAT registration obligations in the UK. If you would like to discuss this further, please contact Rob Janering, or your usual Crowe contact.
