Registering clients for VAT: How to navigate complex tax rules

Value Added Tax impacts businesses and consumers. Most products bought and sold by VAT-registered businesses have VAT added on. For practices, this means clients who sign up for VAT will need your help navigating the complex legislation.

In this step-by-step guide, we explain how you can support your clients with VAT compliance and simplify tax management using modern software tools.

Step 1: Understand the VAT landscape

Clients earning above the VAT taxable threshold (£90,000) must register for VAT. You need to register a client for VAT if they reach this threshold while working with you.

VAT is a tax on goods and services paid by the consumer. In some contexts, clients are the consumers, when they purchase supplies for running their businesses.

There are different VAT rates, and the right one for sales and purchases depends on what’s being sold. In the UK, VAT is paid at 20% for most goods and services. There’s also a 5% reduced rate paid on some health, energy, heating, and protective products and services. Plus, there’s a 0% rate applied to certain products and services to do with health, building, publishing, and children's clothing.

Some products, services, and fees are VAT-exempt. If a business only sells VAT-exempt goods and services, it can’t be registered for VAT. You can learn more about VAT exemptions on the HMRC website.

Since 2022, VAT-registered businesses have been required to follow Making Tax Digital (MTD) rules. Your clients no longer need to worry about how to register for MTD VAT with HMRC – if they’re signed up for VAT, they’re automatically registered for MTD.

Step 2: Address complex VAT registration scenarios

There’s much to consider when you come to register clients for VAT. Here are some scenarios to bear in mind for clients who might need to sign up for VAT.

Financial services and partial exemptions

Generally speaking, financial services are exempt from VAT. This includes things like insurance, finance, and credit. So, if your client only trades in these types of services, they’ll likely be exempt from registering for VAT.

But, businesses can be partially exempt if it makes exempt and taxable supplies, and pays tax on costs associated with both. Partial exemption can be tricky to navigate, because the business owner (and you, their advisor), needs to know which specific supplies and sales are exempt. VAT can’t be charged on or reclaimed on exempt supplies. And, it can be hard to spot which inputs are connected to an exempt sale.

The rules can get a little complicated for VAT on management charges and commissions in the financial services industry, so it’s best to consult HMRC manual for VAT on these services.

Cross-border VAT registration challenges

You don’t need to charge VAT on most exports to countries outside the UK. The sale can be zero-rated, just as long as your clients keep evidence and comply with overseas export conditions.

When it comes to importing goods, VAT-registered businesses typically need to pay the same rate of VAT as they would in the UK. Unless the imported goods are antiques, artworks, or collector’s items, in which case these are subject to a reduced rate of VAT. You can reclaim this VAT using postponed VAT accounting.

While businesses don’t typically need to charge VAT on goods transferred out of the UK, services bought from overseas are subject to the reverse charge rule. Instead of charging VAT, the buyer (your client) calculates the value of services in sterling, calculates the VAT, and includes this in the VAT return. Check out our page on the VAT reverse charge for more guidance.

For clients who may need to sign up for VAT in other countries, HMRC provides overseas VAT guidance on when they might need to do this.

Adapting to changing VAT regulations

It’s important to keep up with changes in VAT legislation so your practice and clients can maintain compliance. In the last few years we’ve seen plenty of updates, including:

• An increase in the VAT threshold from April 2024 – from £85,000 to £90,000
• VAT applied to private school fees as of 1 January 2025
• A consultation on e-invoicing launched in February 2025. An e-invoice is a type of digital invoice that could improve security and protect against VAT-invoice fraud

Keeping tabs on the HMRC website, so that you’re informed on all the latest changes and proposed updates, is your best bet for maintaining compliance. You can even sign up for email updates, so new information flows straight into your inbox.

Step 3: Build a framework for client VAT compliance

Compliance is about more than how to VAT register clients. Though every client has different needs, building a framework for VAT compliance helps ensure no step is missed and all obligations are met. By following a process and using the same system for everyone, work is easier to manage and prioritise.

Establish efficient record-keeping systems

Now that Making Tax Digital is in place for all VAT-registered businesses, keeping digital records is essential. When you register a client for VAT, you need MTD-compliant software ready to go.

Finding a software solution that works for your practice and clients will make the VAT process much easier. Some practices opt for spreadsheets for recording client VAT data, but these spreadsheets need to be connected to bridging software so MTD for VAT returns can be submitted. Plus, complex spreadsheets with formulas are easy to break, resulting in inaccurate records and mistakes.

The best software for MTD for VAT will let you store digital records securely and auto-populate returns with the right information, ready for you to submit on behalf of clients. Focus on making it simple for clients to get transaction data into the system. Look for tools that let your clients upload information digitally and connect their bank accounts for easy transaction monitoring.

With Xero accounting and tax software, clients can connect their bank accounts so that transactions flow in automatically. VAT records are also stored centrally and securely, and they auto-populate MTD for VAT returns so you don’t need to copy figures across. And, because Xero has a direct connection to HMRC, you can submit VAT returns from the software too.

Track VAT deadlines and manage submissions

VAT deadlines aren’t the only dates you need to think about in your practice, which makes keeping on top of them difficult. But, meeting these deadlines is essential for helping clients avoid penalties and fines.

Creating a shared calendar for your team and clients could help you all stay accountable and prioritise work effectively. You could also set reminders and schedule emails for clients, letting them know filing deadlines and requesting any additional information for their submissions.

Early preparation is always the best route, but busy practice life can make this tough. With Making Tax Digital software in place, the submission process is far simpler. If you’re using one piece of software for recordkeeping and submissions your clients’ VAT records can automatically be pulled through into draft returns.

This is how it works in Xero. MTD returns are auto-populated with VAT records, and you can set up different VAT schemes for different clients. Xero also calculates the VAT due, so your clients know exactly what they’re paying.

Address the risks of manual processes

Besides not being compliant in the case of digital links for MTD, manual processes for VAT can slow you and your clients down.

Copying VAT records from one piece of software to another is tedious, time-consuming, and not the best use of your skills. Neither is emailing receipts, invoices, and bills backwards and forwards to your clients.

When you need to copy figures across different tools, you run the risk of mistyping information. Manual VAT calculations are also risky because they’re subject to human error. And, misclassifying a VAT transaction can put your clients at risk of over or underpaying VAT.

Making Tax Digital requires businesses to keep digital records of supplies made and received, and the amount of VAT applied. Doing this in modern accounting software is a simple way to stay compliant and store records securely. When you sign in, VAT accounting software can show you tasks in progress, what’s done, and what’s due.

With Xero, VAT records are stored in a single place, ready for use in VAT returns. Once set up, Xero can automatically add the right amount of VAT to an online invoice, and calculate the total VAT charged and paid. Xero is always monitoring your VAT position, so you have up-to-date figures at your fingertips.

Step 4: Embrace automation for VAT management

Practices shouldn’t need to spend time manually calculating VAT, or working out percentages on top of invoices. Not when modern accounting software can do this quickly and accurately, leaving you more time to work with clients.

VAT accounting software uses automation – where admin tasks are taken care of by technology – so you can focus your time elsewhere. Examples of these features include automatic VAT calculations and tax returns that are auto-populated with VAT records. This takes away the complex maths that you would typically have to do.

Automated features also make compliance easier, since much of the admin is taken care of, giving you a faster route to submitting MTD for VAT returns.

This is the case with Xero accounting software. It’s easy to apply the right amount of VAT to invoices, and this is calculated automatically. And, when it comes to sending MTD for VAT returns, records flow through to Xero, automatically. Xero speeds up bookkeeping by recommending matches for statement lines too, meaning you can get onto the VAT return submission process faster.

Step 5: Simplify VAT management with Xero

Xero makes taking care of VAT simple, transparent, and more effortless for your practice and clients. From the moment you register a client for VAT, Xero is here to help you by:

• Automating VAT calculations and reporting: Xero takes care of VAT calculations for you and your clients, ensuring accuracy and giving them a view of what's due. Xero MTD software is HMRC-recognised, meaning you can keep digital records and submit compliant returns for clients. And, you can manage everyone in a single piece of software. Submitting VAT returns online for your clients only requires Xero.
• Providing real-time updates for VAT: Xero software has automatic updates that ensure it’s compliant with new legislation. Plus, when it comes to MTD, the live testing feature in Xero lets you check MTD for VAT returns with HMRC before submitting them. And, if your clients need more support with VAT overseas, integrated apps like generate.TAX make international compliance simple.
• Equipping you with powerful accountant and bookkeeper tools: Beyond VAT compliance, Xero can help you run your practice more efficiently and keep clients happy. Dashboards put key client metrics front and centre, so you can help them make good financial decisions. And, clever automation for reconciliation, invoicing, and reporting shortens your admin to-do list. A single platform for managing your team and clients, Xero helps you cut down on extra software and manual processes holding you back.

Bringing it all together: Your VAT compliance toolkit

Supporting clients with VAT compliances takes teamwork. From answering their first questions on how to register for MTD VAT with HMRC, to setting up ongoing compliance systems that help you and them spend less time on tax prep.

Now that software is mandatory for VAT, now more than ever, the platform you choose influences how smooth or stressful compliance tasks are in your practice. Xero is designed to be simple for your practice and clients, making it easy to collaborate and automate tedious tasks. So, you can focus on the work that adds the most value for clients.

By understanding the VAT landscape, identifying complexities that apply to your clients, and putting a framework in place that draws on time-saving tools, you can make VAT a breeze.