When do you have
to register for VAT?

How does the threshold actually work?

There are two separate tests and you have to pass neither of them, not either.

The backward look is rolling: at the end of every month, add up taxable turnover for the previous 12 months. Not your financial year — any 12 consecutive months. Cross the threshold and you must register.

The forward look is different: if you expect taxable turnover to exceed the threshold in the next 30 days by itself, you register immediately. One very large contract can trigger this even if your annual turnover is modest.

The threshold figure changes at Budgets. Check the current one on gov.uk rather than working from a number you remember.

What counts towards it?

• —Standard-rated, reduced-rated and zero-rated sales all count as taxable turnover.
• —Exempt supplies do not count — but the distinction between zero-rated and exempt is genuinely technical, so check rather than assume.
• —Sales to customers outside the UK may or may not count depending on what and where. Worth advice if it is a material part of your income.
• —It is turnover, not profit. A business making very little can still be required to register.

Should you register voluntarily?

Registering before you have to makes sense when your customers are VAT-registered businesses, because they reclaim the VAT you charge and you reclaim the VAT on your costs. It is close to free money for the business, and it looks more established.

It makes much less sense when you sell to the public. Adding VAT to a consumer price either cuts your margin or raises your price, and neither is welcome.

There is also a compliance cost: returns, records and Making Tax Digital obligations. Small, but real.

What happens after registration?

• —You charge VAT on your taxable sales from your effective date of registration.
• —You reclaim VAT on eligible business purchases, including some incurred before registration.
• —You file VAT returns, usually quarterly, under Making Tax Digital using compatible software.
• —You keep digital records and issue VAT invoices with the required details.
• —Late registration is penalised and backdated — HMRC will want the VAT you should have charged, whether or not you charged it.