When should you register or de-register for VAT?

Running a business comes with lots of responsibilities – and understanding the VAT system is one of them. It’s important to understand when VAT registration applies, and why some businesses choose to register voluntarily, even if they’re not required to.

What is VAT?

VAT is a government tax added to most goods and services by companies who are VAT registered. VAT is usually charged at 20%, but some goods and services are taxed at a lower 5% rate or 0%. Certain items may not have VAT at all. Businesses who are registered must submit VAT returns to HMRC, usually every three months, to report their sales and purchases and pay VAT quarterly.

Registering for VAT

You must register for VAT with HMRC if:

1. Your taxable turnover in the last 12 months is more than £90,000. You have 30 days from the end of the month when you exceeded the threshold to apply. So, for example, if on 15 July your last 12-month taxable turnover exceeds £90,000, you must register by 30 August.
2. You expect your taxable turnover to exceed £90,000 in the next 30 days.
3. You’re based outside the UK but supply goods/services to the UK.

There’s also the option to choose to register for VAT if your turnover is under £90,000. This lets you reclaim VAT on purchases but also means you must charge it on sales. Although voluntary registration may mean a bit more paperwork, it offers several benefits including the ability to reclaim VAT on eligible goods and services, strengthen your record keeping and boost your business’s credibility.

De-registering for VAT

There are conditions under which de-registering for VAT is required:

1. When your taxable turnover falls below £88,000, and you expect it to stay below that for the next 12 months, you can apply to cancel your VAT registration. This is optional, not automatic. This £88,000 figure is the deregistration threshold introduced on 1 April 2024 – up from £83,000.
2. If you close your business, or completely stop selling taxable goods/services, you must notify HMRC and cancel your VAT registration within 30 days.

Whilst there is a cost to be VAT registered, and you can register for free on the HMRC website, you may want to use a professional for help with VAT and other aspects of your accounting. If you need help or support please get in touch with our friendly team.