VAT Registration: When You Must Register and How to Do It

What Is VAT Registration?

Value Added Tax (VAT) registration means your business is officially recognised by HMRC as a VAT-registered trader. Once registered, you charge VAT on your sales (output tax), reclaim VAT on your business purchases (input tax), and submit regular VAT returns to HMRC.

For many small businesses, VAT registration is the first significant compliance step beyond Self Assessment. Understanding when you must register — and when you might choose to register voluntarily — is essential.

When Must You Register for VAT?

The Compulsory Registration Threshold

You must register for VAT if your VAT taxable turnover exceeds £90,000 in any rolling 12-month period (2025/26 threshold). This is based on the value of everything you sell that isn't VAT-exempt — not your profit, but your total sales.

There are two tests:

The historic test. At the end of any month, if your total VAT taxable turnover in the previous 12 months has exceeded £90,000, you must register. You have 30 days from the end of that month to notify HMRC.

The forward-looking test. At any point, if you expect your VAT taxable turnover to exceed £90,000 in the next 30 days alone, you must register. This catches businesses that land a single large contract pushing them over the threshold.

Example: Historic Test

You're a freelance web developer. Your monthly income has been:

• March 2025: £7,000
• April 2025: £8,000
• May 2025: £7,500
• ... (similar monthly figures)
• February 2026: £8,500

At the end of February 2026, you add up the last 12 months and realise your total is £92,000. You've exceeded the threshold. You must notify HMRC by 30 March 2026, and your registration takes effect from 1 March 2026 (or an earlier agreed date).

Example: Forward-Looking Test

You're a sole trader who normally turns over £4,000 per month. In June, you win a contract worth £95,000 to be delivered in July. You expect to exceed £90,000 in the next 30 days. You must register immediately.

How to Register

Online Registration

The standard way to register is through the HMRC online service:

1. Go to GOV.UK and search for "Register for VAT"
2. Sign in with your Government Gateway account (or create one)
3. Complete the registration form with your business details, including:
   • Your business name and address
   • The nature of your business (SIC code)
   • Your bank account details
   • Your expected turnover
   • The date you need to be registered from
4. Submit the application

HMRC typically processes VAT registrations within 30 working days, though it can take longer. You'll receive your VAT registration certificate with your VAT number.

By Post

You can also register by post using form VAT1, available from GOV.UK. This takes longer than online registration.

Through an Agent

Your accountant or tax adviser can register you for VAT on your behalf if they're authorised to act for you.

What Happens After Registration

You Must Charge VAT

Once registered, you add VAT to the price of your taxable goods and services at the appropriate rate:

• Standard rate: 20% (most goods and services)
• Reduced rate: 5% (some goods and services, like home energy)
• Zero rate: 0% (some goods and services, like most food and children's clothing)

You Can Reclaim VAT

You can reclaim VAT you've been charged on business purchases. This is one of the key benefits of registration — you recover VAT on costs that were previously a pure expense.

You Must Submit VAT Returns

Most VAT-registered businesses submit quarterly VAT returns through Making Tax Digital (MTD) compatible software. Each return calculates:

• Output VAT (VAT you've charged to customers)
• Input VAT (VAT you've paid on purchases)
• The difference — either you owe HMRC or they owe you

You Must Keep Digital Records

Under MTD for VAT, you must keep digital records of your VAT transactions and submit returns using MTD-compatible software. Accounted is fully MTD-compatible, making this requirement effortless.

Choosing Your VAT Scheme

When you register, you can choose from several VAT schemes. Each has different rules about when you account for VAT:

Standard VAT Accounting

You account for VAT when you issue an invoice (or receive payment, whichever is earlier). You reclaim VAT when you receive a purchase invoice.

Flat Rate Scheme

Instead of tracking input and output VAT separately, you pay a fixed percentage of your gross turnover. The percentage depends on your industry. This simplifies administration but may cost more or less depending on your expenses. See our guide on the Flat Rate VAT Scheme.

Cash Accounting Scheme

You only account for VAT when you actually receive or make payments, rather than when invoices are issued. This helps cash flow if you have customers who pay slowly.

Annual Accounting Scheme

You make advance payments during the year and submit one annual VAT return instead of quarterly returns. Good for businesses that prefer less frequent administration.

You can combine some schemes (e.g., flat rate with annual accounting), but not all combinations are possible.

Backdating Your Registration

If you should have registered earlier but didn't, you may need to backdate your registration. HMRC can register you from the date you should have registered, and you'll need to account for VAT on all taxable sales from that date — even if you didn't charge VAT to your customers.

This can be costly. If you sold £50,000 of services at £50,000 and should have charged 20% VAT, you now owe HMRC £10,000 — which comes from the £50,000 you received (treated as £41,667 plus £8,333 VAT). Plus, HMRC may charge penalties for late registration.

Monitor your turnover carefully. With Accounted, Penny tracks your cumulative turnover and alerts you when you're approaching the VAT threshold, so you never miss the registration deadline.

Voluntary Registration

You can register for VAT voluntarily even if your turnover is below the threshold. This can be beneficial if:

• You sell mainly to VAT-registered businesses (who can reclaim your VAT, so it doesn't increase their costs)
• You have significant VAT-able expenses that you want to reclaim
• You want to appear larger or more established
• You're buying capital equipment and want to reclaim the VAT

See our guide on voluntary VAT registration for a detailed analysis.

The Deregistration Threshold

If your turnover drops below £88,000 (2025/26 deregistration threshold — always lower than the registration threshold), you can apply to deregister. You must deregister if you stop making taxable supplies altogether.

Common Mistakes

1. Not monitoring your rolling 12-month turnover. Many businesses breach the threshold without realising it because they only look at annual accounts rather than rolling figures.

2. Registering late. Late registration means backdated liability and potential penalties. Don't delay.

3. Not understanding what counts as taxable turnover. Exempt supplies don't count towards the threshold, but zero-rated supplies do.

4. Forgetting to charge VAT from the registration date. Once registered, all invoices must include VAT from your effective date of registration.

5. Not choosing the right scheme. The default standard scheme isn't always the best option. Consider flat rate, cash accounting, or annual accounting.

How Accounted Handles VAT

Accounted is fully MTD-compatible for VAT. Once you're registered, Penny automatically:

• Calculates VAT on your sales and purchases
• Prepares your quarterly VAT return
• Submits directly to HMRC through the MTD API
• Keeps compliant digital records

Never miss your VAT registration deadline. Start your free trial with Accounted and let Penny monitor your threshold and handle your VAT returns.