When does a business need to register for VAT?

You must register your business for VAT once your VATable turnover reaches the VAT registration threshold in any 12-month period, which as of 2020/21 stands at £85,000.

What is VATable turnover?

Your VATable turnover is the total amount of everything you sell that is not exempt from VAT.

 

What is VAT exempt?

Things that typically are exempt from VAT include goods or services considered to be essential, such as:

  • Insurance
  • Charity donations
  • Investments
  • Some medical procedures
  • Training
  • Certain postage

You might see VAT exempt items referred to as being ‘out of scope’, because they are outside of the scope of VAT rules. You’ll still need to record these transactions as business expenses, even if they’re exempt from VAT.

 

How do I calculate VATable turnover?

Add together all of your UK sales that aren’t VAT exempt for the previous 12 months. If this total is approaching or exceeds £85,000, you’ll need to register for VAT.

When you work out VAT taxable turnover, you should also include any zero-rated items (sales which include items rated at 0% VAT). 0% rated VAT is different to being VAT exempt, so you’ll still need to include these in your VAT records.

The figures that you must include also depend on whether you’re a sole trader or a limited company.

Sole traders aren’t legally separate from their business. If you have multiple sole trader businesses, you must add up all of the VAT taxable sales from all of your business.

Limited companies are a separate entity in their own right. You only need to include the turnover figures from each company to work out if you need to register for VAT. If you have multiple companies, look at the turnover of each one separately, unless you decide to register them all under one VAT registration number.

Can I register if I am below the threshold?

Yes, you can voluntarily register for VAT even if you are not at the threshold. This may be advantageous for you when obtaining work with larger corporate businesses (it might seem wrong, but there is a prestige element to being VAT registered).

You may also benefit from registering for the Flat Rate VAT scheme which normally favours service-based businesses where non-VATable time is their main expense. You can register for the Flat Rate scheme if your turnover is below £150k per annum.

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