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When should I register for VAT

Knowing when to register for VAT is not always a straight forward process.  For example, you have to register for VAT if the taxable income of your business exceeds £77k in the last 12 month period.  However, you may want to register for VAT before this threshold.

VAT Threshold

If the turnover of taxable goods and services supplied within the UK for the previous 12 month period exceeds the VAT threshold, or is expected to be exceeded within the next 30 days you must register for VAT.  

However, if you have exceeded the threshold temporarily due to an exceptional item then you may not need to register and can ask HMRC for exception.

Please note that taking over a business that is trading or transferring a sole trader business into a limited company does not reset the 12 month threshold period and thus care must be taken in order to calculate the threshold correctly.

You will need to pay attention to your income, especially if income is increasing on a regular basis.  On average if you are earning above £6,500 each month you will exceed the VAT threshold at some point in the 12 month threshold test.  

Voluntary Registration

There are times that you may wish to voluntarily register for VAT:

Starting a new business:  if you are starting a new business you may just wish to register from the onset.  Alternatively, you may be required to register if you are contracting.  Furthermore, if you have large set up costs then registering would ba good way to reclaim VAT on the costs paid initially.

Flat rate scheme:  If contracting you may decide to register for the flat rate VAT scheme regardless of your turnover level.  On this scheme you would charge your customer 20% but only pay the required, often lower, percentage to HMRC.  This method can increase cash flow slightly.

Non VATable sales:  there are times where you may only charge customers outside the UK for services or products.  On this basis you would not charge VAT to your customer but could reclaim the VAT paid on expenditure.  If reclaiming VAT back regularly, HMRC may start looking at this more closely. 

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