Chapter 2

Registering for VAT

Find out if your business needs to worry about VAT. And if so, learn how to register for VAT.

A business owner registering for GST on a tablet

Who needs to register for VAT?

Some businesses have to register for VAT, some aren’t allowed to, and others can choose.

  • Who must register for VAT: Businesses with an annual taxable turnover of more than £85,000. You may be fined if you don’t register.
  • Who is not allowed to register for VAT: Businesses that sell only VAT-exempt goods and services.
  • Who can choose to register for VAT: Businesses with an annual taxable turnover of less than £85,000.

Benefits of registering for VAT

Once you’re VAT registered, you don’t end up paying VAT on business expenses. You’ll still get charged the VAT-inclusive price when you make the purchase, but you can claim that money back when you file your return with HMRC.

What do I need to register?

To register, you need:

  • a National Insurance (NI) number or your tax identifier (Unique Taxpayer Reference – UTR)
  • details of other businesses you’ve owned within the past two years
  • your business bank account details

If you bought the business, you’ll need to supply records of the sale.

How to register for VAT

It’s easy to register for VAT on your own and it costs nothing. Your best bet is to do it online through the HMRC website. Start the registration process here.

Want to know how to register for VAT by post? You can download a form from this gov.uk page.

Choosing a VAT accounting scheme

Now you know the basics of how to register for VAT. But during the process, you’ll be asked to identify what VAT accounting scheme you’ll use. The accounting scheme is how HMRC calculates whether you owe VAT, or get a refund.

  • Most businesses must use standard VAT accounting: You record the VAT collected on each sale and the VAT paid on each purchase, then submit a VAT return to HMRC every quarter.
  • You may be able to use annual VAT accounting: Some businesses can submit a VAT return once a year, however they are still expected to pay quarterly. Those quarterly payments are based on your last return, or an estimate.
  • You may be able to join a flat-rate scheme: Certain smaller businesses can skip all the VAT accounting and simply pay a percentage of their turnover as VAT. An accountant or bookkeeper can help you decide if this makes sense for your business. You can see the flat rates for specific industries on this gov.uk page.
  • You may be able to use a cash accounting scheme: Under cash basis accounting, you’re assumed to have collected or paid VAT when money changes hands. Under all the other schemes, you’re assumed to have collected or paid VAT as soon as an invoice is raised.

Once you’re registered for VAT

After VAT registration you need to:

  • add VAT to your prices
  • issue VAT invoices to your customers
  • file VAT returns and pay any VAT due to HMRC
  • keep digital VAT records and a VAT account

Why do I need to keep digital records?

If you’ve signed up for Making Tax Digital for VAT (which all VAT registered businesses need to do by April 2022), the records you must keep are the same as any VAT-registered business. The difference is that you’ll need to keep some of them digitally. For specific details of records that must be kept digitally for MTD-registered businesses, see here.

It’s important that you comply with Making Tax Digital. HMRC can visit your business to inspect your record keeping and charge you a penalty if your records are not in order.

How do I keep digital records?

VAT-registered businesses must:

  • keep records of sales and purchases
  • keep a separate summary of VAT (called a VAT account)
  • issue correct VAT invoices

The records must be:

  • kept for at least 6 years (or 10 years if you used the VAT MOSS service)
  • accurate, complete, and readable

Learn more about Making Tax Digital and who needs to register in the chapter Filing your VAT return through Making Tax Digital.

Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

VAT Guide For Business

Making a start with VAT? Want to know more about how MTD for VAT impacts you? This guide will help you get sorted.

Download the VAT Guide for Business

Get your VAT sorted. Fill out the form to receive this guide as a PDF.

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