You must register when either is true
- Your taxable turnover in any rolling 12 months has gone over £90,000.
- You expect to go over £90,000 in the next 30 days alone, for example a single large contract.
Taxable turnover means sales of goods and services that would carry VAT if you were registered. Some supplies are exempt (certain financial services, insurance, education, residential rent), and those do not count toward the threshold.
What changes once you register
You charge VAT on your invoices, you reclaim VAT on your business purchases, and you file quarterly VAT returns to HMRC through Making Tax Digital compatible software. The deadline for each return is one month and seven days after the end of the VAT quarter.
The three schemes worth knowing
Standard VAT
The default. You charge 20% output VAT on sales, reclaim 20% input VAT on purchases, and pay HMRC the difference. Best for businesses that buy a lot from VAT-registered suppliers, because you get the input VAT back.
Flat Rate Scheme
You charge full VAT to your customers but pay HMRC a fixed percentage of your gross turnover and keep the difference. The percentage depends on your industry. You cannot reclaim input VAT on most purchases.
Simpler administratively, and sometimes financially better for service businesses with few costs. Available if your taxable turnover is £150,000 or less.
Cash Accounting Scheme
You account for VAT only when money actually moves (customer pays you, you pay a supplier), rather than when invoices are issued. Useful if you have slow-paying customers. Available if your taxable turnover is £1.35 million or less.
Voluntary registration
You can register below £90,000. It is worth doing if your customers are VAT-registered businesses (they do not care about the extra 20% because they reclaim it) and your purchases carry a lot of input VAT you would otherwise lose.
Timing matters
If you breach the threshold on, say, 30 June, you have until 30 July to tell HMRC. You must start charging VAT from 1 August. Late registration brings penalties plus the VAT you should have charged, which in practice you often cannot recover from past customers. Watch the number as you grow.