When should you register for VAT?
The VAT registration turnover threshold is £85,000, your business must register for VAT if:(continue reading below)
your business must register for VAT if:
you expect your VAT taxable turnover to be more than £85,000 in the next 30-day period (this is rare – meaning you’ve one large job / very busy month ahead), or
your business had a VAT taxable turnover of more than £85,000 over the last 12 months
Count your turnover on a rolling 12-month basis 🗓️
If you’re getting anywhere near the threshold you must count your turnover at the end of each month on a rolling 12-month basis, i.e. at the end of every month you must count-up your turnover for the previous 12-months. This is best done by creating a spreadsheet to constantly add the latest month and delete the oldest month. A common trap is to only count your turnover at the end of your accounting year – this is simply not the correct method and has lead to many late VAT registrations, underpaid VAT and HMRC penalties.
When must you submit your application to register? 📝
You must register within 30 days of the end of the month when you went over the threshold.
For example: By the end of June your 12-month rolling count shows that you crossed the VAT registration threshold. You must submit your application to register by 30 July and you’re Effective Date of Registration (EDR) will be 1 August (notice that during July you're trading over the threshold but you're not having to charge VAT).
Should my business voluntarily register for VAT?
⛔ If you’re selling mostly to the general public / small businesses then VAT registration essentially becomes a cost to your business / to pass on to your customers. If your cost of sales is typically 50% of your sales then you would need to increase your prices by at least 10% to cover the additional cost of VAT (sales +20% output VAT, less cost of sales -20% input VAT x 50% margin).
✅ If you’re selling most to VAT registered businesses then it might be worthwhile voluntarily registering your business for VAT even if you’re trading under the threshold. Essentially your output VAT will be reclaimed by your customers and your input VAT can be reclaimed by you. Seek advice – the tax saving must outweigh the extra admin you’ll necessarily incur.
The basics are summarised in HMRC’s video above.
Would you like help to pay less tax? Feel free to get in-touch or check-out our related posts 👇