VAT registration is compulsory for many businesses once taxable turnover reaches the registration threshold, but the timing rules are easy to misunderstand. There is also a separate option to register voluntarily before the threshold is reached.
When VAT registration is compulsory
The current UK VAT registration threshold is £90,000 of taxable turnover. You must normally register if either of these tests is met:
- your total taxable turnover for the last 12 months goes over £90,000
- you expect your taxable turnover to go over £90,000 in the next 30 days
These are two different tests and they produce different registration dates.
The rolling 12-month test
If your taxable turnover goes over £90,000 when looking back over the previous 12 months, you normally have 30 days from the end of the month in which you exceeded the threshold to notify HMRC. Your effective date of registration is normally the first day of the second month after you went over the threshold.
The next 30 days test
A separate rule applies if, at any point, you expect your taxable turnover in the next 30 days alone to go over £90,000. In that situation you must notify HMRC by the end of that 30-day period, and the effective date of registration is the date you first formed that expectation.
What counts as taxable turnover?
Taxable turnover is not simply your bank receipts or accounting profit. It includes supplies that are standard-rated, reduced-rated and zero-rated. Supplies that are exempt from VAT or outside the scope of UK VAT are generally excluded from this turnover test.
Some businesses have special registration rules, including businesses based outside the UK, so the £90,000 threshold should not be treated as universal in every situation.
What if you only exceeded the threshold temporarily?
If you became liable under the rolling 12-month test but can show that your taxable supplies will not go over the current deregistration threshold of £88,000 in the following 12 months, you may be able to apply to HMRC for an exception from registration.
The exception is not automatic, and it does not apply to the separate next 30 days test. You need HMRC to approve the exception.
Should you register voluntarily?
A business below the compulsory threshold can choose to register voluntarily. Whether that is worthwhile depends on the customer base, pricing, costs and amount of recoverable input VAT.
Voluntary registration can be attractive where customers are themselves VAT registered or where the business incurs significant recoverable VAT. On the other hand, charging VAT can affect pricing for customers who cannot recover it, and registration brings additional record-keeping and filing responsibilities.
What changes after registration?
Once registered, you need to account for VAT from your effective date of registration, keep the required VAT records and submit VAT returns. VAT-registered businesses should use compatible software for Making Tax Digital for VAT unless an exemption applies.
Can you deregister later?
If you are already VAT registered and your taxable turnover falls below £88,000, you may be able to ask HMRC to cancel the registration. Separate rules apply where the business stops trading, changes legal status or has other special circumstances.
If you are approaching the threshold, have exceeded it, or are considering voluntary registration, get in touch before choosing a registration date or VAT treatment.
