For many businesses, VAT registration is a key milestone. Whether you’re a sole trader, partnership, or limited company, it’s important to understand when VAT becomes compulsory and what the implications are for your business.
The VAT Threshold
The taxable turnover threshold that determines whether a business must register for VAT is currently £90,000. This means that once your sales of taxable goods and services exceed this figure, you may be legally required to register with HMRC.
There are two key tests to watch out for:
The historical test – At the end of any month, if your total taxable turnover for the previous 12 months exceeds £90,000, you must register.
The future test – If you have reasonable grounds to believe that your turnover will exceed £90,000 in the next 30 days alone (for example, if you’ve secured a large contract), you must register immediately.
It’s worth noting that the same £90,000 threshold applies to relevant acquisitions from other EU Member States into Northern Ireland.
VAT for Non-UK Businesses
Even if your business has no physical presence in the UK, you may still have an obligation to register. If you supply goods or services to UK customers, or expect to do so within the next 30 days, UK VAT rules could apply. This is an important consideration for overseas sellers trading through online marketplaces or directly with UK customers.
Updates to HMRC Guidance
HMRC recently updated its notice Who should register for VAT (VAT Notice 700/1). A few key areas were revised:
Voluntary registration (Section 3.9) – Guidance has been expanded to help businesses choose the correct Effective Date of Registration (EDR) and understand how that date affects VAT obligations.
Reclaiming VAT paid before registration – Clarifications have been made on which pre-registration costs are recoverable and how to calculate these amounts.
Business impact – The updated notice provides more detail on how VAT registration could affect pricing, record keeping, and compliance requirements.
For businesses just under the threshold, it’s worth reviewing voluntary registration. Registering early can allow you to reclaim VAT on business expenses, though it also means committing to VAT compliance.
De-registration Threshold
If your taxable turnover falls below £88,000, you may be eligible to apply for de-registration. This can reduce your administrative burden but may also impact how your business is perceived, particularly if you trade with VAT-registered clients who benefit from reclaiming VAT.
Key Takeaways
VAT registration is compulsory once your turnover exceeds £90,000 under the historic or future test.
Non-UK businesses selling into the UK may also have a VAT liability.
HMRC’s updated guidance provides clearer rules around voluntary registration, reclaiming VAT on pre-registration costs, and selecting your EDR.
Businesses can deregister if turnover drops below £88,000.
VAT can be complex, but keeping a close eye on your turnover and understanding the rules will help you stay compliant and make the right decision for your business.
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With the free VAT calculator, you can calculate the tax amount online in three simple steps. The tool provides you with three fields that have to be filled, and it calculates VAT automatically based on what you fill in. Enter the price of the goods or services in the Amount field. Enter the percentage of VAT, or the slab that the product comes under, in the VAT % field. Choose if the price that you entered is inclusive or exclusive of tax in the Tax field. If the price you've entered is inclusive of tax, the tool automatically calculates, and displays the original price of the goods or service after subtracting the VAT. If the price you've entered is exclusive of tax, the tool automatically calculates, and displays the gross price after adding the VAT.