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When do you need to register for VAT?

You need to register your business for VAT if your total VATable turnover goes over £85,000 in any rolling twelve month period, or you expect your turnover to exceed £85,000 in the next 30 days.

This applies to whatever type of business you have, whether it’s a sole trader, partnership or limited company.

Other times to register

You must also register for VAT if you takeover another business and the combined turnover of your new and existing businesses hits the threshold.

What if I only briefly go over the threshold?

If you are only temporarily over the threshold – for instance one big job in one month takes you over but falls back below the following month – you can apply for a registration exception.

You will need to write to HMRC and explain why you feel that an exception applies and why your turnover will fall back below the threshold. HMRC will either grant you the exception and write to you to confirm it, or they will register you for VAT.

What happens if I register late?

If you register late you will need to account for and pay HMRC any VAT you should have collected from the date you should have been registered. You may also get a penalty for late filing of VAT returns and be charged interest on any late payments.

If your customers are also VAT registered businesses you may be able to back date and reissue your invoices to collect the VAT from them which they can then claim back as input VAT on their own VAT returns.

However, if they are not willing to do that or your customers are not VAT registered and therefore cannot claim back the extra cost, the business will have to meet the shortfall itself.

Can you register for VAT before you hit the threshold?

Yes, you can register for VAT before you hit the £85k threshold if you choose to do so, but once you do you must account for VAT from the date of registration, not just when you actually reach the threshold.

Usually you would only want to do this if you were expecting to be receiving VAT refunds – working in the building trade for example – or if you are starting up your business and expect to have large investment costs you want to claim VAT back on to help cash flow.

More information can be found on the HMRC site here.