UK VAT – what is it and when do I need to register?

UK VAT (Value Added Tax) is a sales tax.

It is however, a cost to individuals and businesses that are not VAT registered as these parties cannot reclaim the VAT on their returns.

UK VAT registration is compulsory when:

  • A UK based business makes taxable supplies (sales) above a certain threshold (see below).
  • You expect to go over the threshold in the next 30 days.
  • You receive goods in the UK from the EU worth more than £85,000.

£85,000 is the current threshold of invoiced sales in any 12-month period.

Any business which is registered for UK VAT must charge VAT on its taxable supplies. The standard VAT rate is currently 20%.

When a business is registered for VAT it must charge VAT at 20%. Other VAT rates apply in certain specific circumstances, but the standard rate is the most common. Once a business is registered for VAT, any VAT borne on the purchase of goods or services for the registered business from suppliers, is recoverable from the tax authorities – HMRC.

Businesses may select (subject to parameters) to make a VAT return on a monthly, quarterly or yearly basis.

Quarterly returns are the most common in the UK and often preferable from a cash flow perspective.

At the end of the VAT period (when your return is due), the amount of VAT charged and invoiced to customers, less the amount of VAT on purchases, is due to HMRC, or recoverable if the VAT suffered is in excess of the VAT charged.

There may be other reasons for becoming UK VAT registered:

  • Voluntarily registration is possible for VAT even if your taxable supplies are below the threshold. This enables you to reclaim input VAT on relevant expenditure.
  • A VAT registered business may give you more credibility. When businesses are not VAT registered it could be possible to conclude that your turnover is effectively less than £85,000 – the threshold for registration.

VAT, like most taxes worldwide, can be a costly mistake unless appropriate professional advice is sought. Registration for VAT may be time consuming. This post is intended to provide a general understanding so please get in touch if you would like any further information.