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.
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 needed 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
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 content provided.
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.
- What is VAT and how much is it?
You’ve probably heard about VAT before – it stands for Value Added Tax and is added onto prices in the UK.
- Registering for VAT
Find out if your business needs to worry about VAT. And if so, learn how to register for VAT.
- Calculating VAT and issuing VAT invoices
If you’re a VAT-registered business you must add VAT to your prices. You also need to issue VAT invoices. Find out how.
- Claiming back VAT
VAT-registered businesses can claim back the VAT they pay on business expenses. Let’s learn how.
- Working out your VAT refund or payment
Working out VAT is simple maths. Keeping track of all your transactions is the tricky part. Let’s learn the process.
- Filing VAT return through Making Tax Digital
Once you’ve registered for VAT, you’ll need to submit returns online regularly – and square up with HMRC. Here’s how.
- Tools and guides for your business
Now you know the ins and outs of VAT, but it can be tough to keep on top of it all. Xero’s got the resources to help.
Download the VAT Guide for Business
Get your VAT sorted. Fill out the form to receive this guide as a PDF.