Do I need to register for VAT – The complete guide

Jan 7, 2021 | Accounting, Finance, Small businesses, VAT

If you’re unsure whether you should be registered for VAT we’ve put together this handy guide to help you.

What is VAT?

VAT stands for Value Added Tax.  it’s a Government tax that’s added to certain goods and services that are produced within EU member states.

Britain introduced the VAT scheme when we became an EU member in 1973 and although we’re now planning on leaving the European Union, the Government has confirmed that VAT Returns will continue after our departure.

After income tax and National Insurance, VAT generates the Government its largest source of revenue. It’s applied as a standard rate of 20% in most cases, although selected goods and services qualify for reduced VAT of 5%, and others are VAT-exempt entirely.

Although VAT is a tax, there are benefits to becoming a VAT registered business and we’ll introduce these in more detail later in this guide.

How do I know if I’m liable for VAT?

You must become VAT registered in the UK if your business turns over more than the VAT threshold in a single 12-month period (£85,000 at the time of writing). If you can see your turnover is nearing this threshold you have to register for VAT within 30 days, or you face being fined.

You can also register for VAT voluntarily, even if your annual turnover is beneath the current VAT threshold. This will allow you to claim back VAT on purchases your company makes, which is one reason some business owners elect to do so. But it isn’t the only benefit.

The key benefits of being VAT registered

1. You can reclaim VAT on expenditure
VAT registered businesses have to charge VAT on goods and services they supply, so you’ll pay VAT on your purchases.  But if you’re registered for VAT you can reclaim the VAT.  It’s automatically claimed back as part of your VAT returns.

2. Your company gains status
Although registering for VAT isn’t mandatory if your turnover is below the threshold, another big advantage of being VAT registered is the impression it gives about your company. As VAT registration is required when your annual turnover exceeds £85,000, voluntarily registering for VAT when your turnover is below the threshold can help make your company seem more successful. It can give suppliers and clients the confidence they need to do business with you, which in turn can help you generate more business.


How do I become VAT registered?

If you reach the VAT threshold, or you want to voluntarily register for VAT, you’ll need to choose the right VAT scheme for your business.

The choice of VAT scheme will depend largely on the nature of your business, your annual turnover, and how frequently you want to make VAT payments.

There are also VAT schemes exclusively for specific industry sectors (such as travel, retail, the sale of second-hand goods) which may not apply to your business

VAT is a complex area, so it is recommended to seek accountancy services and benefit from our professional advice, to ensure you choose the right scheme for you.  We also provide efficient VAT services, so we’ll take care of all the paperwork, leaving you to focus on the business.

What happens once I’m VAT registered?

When your VAT registration is confirmed you’ll be issued with a certificate stating your VAT number, registration date and the deadline to submit your first VAT returns and payment.

You’ll need to show your VAT number on every invoice your business generates and issues to customers from this point forward.

How do I calculate and pay VAT?

Once your business is registered for VAT you’ll need to use approved accounting software to electronically submit your VAT returns. The accounting software needs to be configured for your VAT scheme so that it calculates the VAT correctly.  If you’d like to seek for professional accounting services, we have a great team that can look after this for you.

The Standard Accounting Method allows you to pay VAT quarterly, so you’ll need to submit four VAT returns per year.  Annual VAT Accounting only requires one yearly return, while still allowing you to spread the payments – but this method only applies to businesses turning over more than £1.35 million per annum.

Are there any downsides to becoming VAT registered?

  • Your paperwork could increase – Depending on the VAT method you use, you could be liable for multiple VAT returns per year, adding to the paperwork your business has to process. However, if you get professional VAT services this will be done for you.
  • Your prices might have to go up – You will probably need to increase the price of your products or services to add on the VAT you’ll need to charge unless you make exempt or zero-rated supplies. This could cost you loyal customers and negatively impact sales unless your customers are VAT registered and can claim back the VAT you charge.


Do sole traders need to pay VAT?

Yes, if your annual turnover is above the VAT earnings threshold, you are obliged to register and pay VAT.  Just like a limited company, you are also allowed to voluntarily register for VAT even if your turnover is less than the threshold. The VAT registration in this case will be under your personal name.

Making sense of VAT

While VAT is a choice for some, for most businesses it’s a legal obligation. With just a short 30-day window to become VAT registered or face a penalty, it’s best to obtain advice in advance if you suspect your turnover is close to the threshold.

Here at ASfB, we look after the VAT returns for small SMEs through to large businesses, providing efficient accountancy services with clear advice.

If you want to find out more about the joys of VAT and the schemes appropriate to your business, why not call us on 01202 755600 or email