When do I need to register for VAT?

In the UK charging Value Added Tax (VAT) to your customers becomes compulsory when your VAT taxable turnover is over £85,000. If you think you may be near this threshold it is important to keep your accounts up to date and check them at least monthly as this VAT registration threshold is based on a rolling 12 month period. So not just when your year end accounts are produced. 

What then?

If at the end of the month your turnover for the past 12 months has gone over the £85,000 threshold you have 30 days from the end of that month to register with HMRC for VAT. You then need to start charging VAT to your customers from the 1st day of the second month after you crossed the threshold (this is your effective date of registration). E.g. If you crossed the threshold in November; you will have until 30th of December to register and your effective date of registration will be the 1st of January.

What if i’m late?

VAT registration can be backdated, but you will still have to charge any VAT that should have been due from the effective date of registration onwards. If this is late it may or may not be possible to pass this charge on to your customers so you could be left out of pocket, having to pay the 20% VAT yourself.  HMRC may also charge penalties when this occurs, so it’s best avoided. 

Reclaiming VAT prior to registration 

When you register for VAT you can reclaim the VAT paid on your purchases. Both from the date of registration onwards, and for some items prior to registration (Without having to charge VAT on the sales for that period). Bonus! 

  • For services, this is anything purchased in the 6 months prior to the effective date of registration.
  • For physical goods you still own (e.g. stock not yet sold,) this can be backdated up to 4 years! 

How do you submit your vat return?

A few years ago this was done by manually typing the figures into HMRC’s website. Since HMRC’s Making Tax Digital initiative you now need to submit your vat returns via approved accounting software. For more infomation about MTD see our Making Tax Digital Guide.

Top Tip

Use online accounting software like Xero and Receipt Bank to store digital copies of your receipts. That way they are built in to your accounting records, keeping them safe and easy to find. HMRC can request a VAT inspection with as little as 7 days notice. Wanting to see your records for the previous 4 years (or as much as 20 if deliberate errors are found). Will you be able to find a particular receipt from 4 years ago?