Value-added tax (VAT) is a consumption tax applied to most goods and services in the United Kingdom. When your business becomes VAT registered, you’re effectively acting as a tax collector for the government: you charge VAT on the goods or services you sell (output tax), and you can reclaim VAT you’ve paid on business expenses (input tax).
Below, we’ll explain what it means to be VAT registered in the UK, how to register online, and the responsibilities of a VAT-registered business.
What’s in this article?
- What does it mean to be VAT registered in the UK?
- What are the VAT registration thresholds in the UK?
- How do you register for VAT online with HMRC?
- What are the different VAT schemes available for UK businesses?
- What are the responsibilities of a VAT-registered business?
- How can you simplify the VAT registration process?
What does it mean to be VAT registered in the UK?
While VAT registration is in part a compliance exercise, it can also help strategically position your business:
Many clients—especially larger corporations—prefer working with VAT-registered businesses, as it signals maturity and professionalism.
Being VAT registered allows you to claim back VAT on expenses such as equipment and software, which directly improves your bottom line.
If you trade internationally, VAT registration can make the customs process smoother.
If you’re planning to scale your business, registering early saves you from rushing to comply and risking penalties once you start to grow.
VAT registration requires you to keep detailed financial records, which can give you a clearer picture of your business’s financial position.
What are the VAT registration thresholds in the UK?
In the UK, businesses that bring in a certain level of taxable income are required to register for VAT.
The UK government has set an annual VAT registration threshold of £90,000 in taxable turnover over any rolling 12-month period. Taxable turnover includes all revenue from VAT-applicable goods and services, but it doesn’t include revenue from VAT-exempt items such as offering financial services or selling insurance. Double-check what’s taxable in your industry so you know what contributes to the total.
Once you exceed the threshold, you must register within 30 days of the end of the month to avoid fines or penalties. If you delay, you’ll still owe VAT from the date you should have registered. You can also register voluntarily, even if your turnover is below the threshold.
How do you register for VAT online with HMRC?
In certain situations, you’ll need to register for VAT by mail—for example, if you’re joining the Agricultural Flat Rate Scheme or applying to register an overseas partnership. Otherwise, you can use the online application in His Majesty’s Revenue and Customs (HMRC) Government Gateway webpage. First, you’ll need to create an account if you don’t already have one. Next, you’ll need to gather the required documents.
For a limited company, you’ll need:
Company registration number
Business bank account details
Unique Taxpayer Reference (UTR)
Details of your annual turnover
Information about your Self Assessment return
Information about your corporation tax
Information about Pay As You Earn (PAYE)
For an individual or partnership, you’ll need:
National Insurance number
Identity documents, such as a passport or driver’s license
Bank account details
Unique Taxpayer Reference, if you have one
Details of your annual turnover
Information about your Self Assessment return
Information about your payslips
Information about your P60 forms
Once you have your documents, fill out the online VAT application. Provide details about your business structure and activities, and specify whether you’ll register under a VAT scheme. Double-check details before submitting, especially turnover estimates and business classifications, as errors can delay registration. After you’ve submitted, HMRC will mail you a nine-digit VAT registration number and confirmation of your registration date.
What are the different VAT schemes available for UK businesses?
In the UK, businesses can choose from several VAT schemes customized to their size and operations. The schemes are designed to simplify how some VAT-registered businesses calculate and account for VAT.
Flat Rate Scheme
The Flat Rate Scheme simplifies VAT reporting for small businesses with an annual taxable turnover of £150,000 or less (excluding VAT). Businesses pay a fixed percentage of their gross turnover instead of tracking VAT on every transaction, and rates vary by industry. Under this scheme, businesses typically can’t reclaim VAT on purchases, except for specific capital goods over £2,000.
Cash Accounting Scheme
The Cash Accounting Scheme is suitable for businesses with a VAT taxable turnover of £1.35 million or less. With this scheme, businesses account for VAT based on actual payments received and made. This means they pay VAT to HMRC when their customer pays them, which can be beneficial for cash flow management.
Annual Accounting Scheme
The Annual Accounting Scheme lets businesses with a VAT taxable turnover of £1.35 million or less submit one VAT return per year instead of quarterly returns. Throughout the year, the business makes advance payments toward its VAT bill, which can help with budgeting.
Retail schemes
Retail schemes simplify VAT calculations for retail businesses by allowing them to account for VAT once for each VAT return, instead of tracking VAT on each sale. There are three retail schemes:
Point of Sale Scheme: The business identifies and records VAT at the time of sale.
Apportionment Scheme: The business calculates VAT by comparing the value of goods purchased for resale at each VAT rate to the total sales.
Direct Calculation Scheme: The business calculates different VAT rates for the VAT period at once when a small proportion of sales are at one rate and the majority are at another rate.
These schemes are particularly useful if you sell a high volume of low-value items.
Margin schemes
Margin schemes allow businesses dealing in preowned goods, pieces of art, antiques, or collectibles to pay VAT on the difference between the purchase and selling prices rather than the full selling price. This can result in a lower VAT bill.
What are the responsibilities of a VAT-registered business?
You have a few responsibilities if your business is registered for VAT, including:
Adding VAT to the price of the products or services you sell, unless you apply one of the special schemes where VAT is not added to the price
Charging the correct VAT rate
Giving customers invoices with the VAT amount (unless you apply one of the special schemes where VAT is not added to the price) and your VAT registration number
Keeping records of all VAT charges for filing VAT returns (usually every three months)
Paying any VAT you owe by the deadline after filing
Making Tax Digital (MTD)
Making Tax Digital (MTD) is a UK government initiative aimed at modernizing the tax system by requiring businesses to maintain digital records and submit tax returns electronically. MTD mandates that all VAT-registered businesses, regardless of turnover, comply with the following digital requirements:
Digital recordkeeping: Businesses must use compatible software to maintain digital records of all VAT-related transactions.
Digital submission of VAT returns: VAT returns must be submitted directly to HMRC using MTD-compatible software. Manual submissions through the HMRC online portal are no longer accepted.
Digital links: If multiple software programs or spreadsheets are used to manage VAT records, they must be “digitally linked.” This means data should be transferred electronically between programs without manual intervention, ensuring the integrity and accuracy of the records.
How can you simplify the VAT registration process?
If you’re looking to make VAT registration less of a burden, here are some practical tips:
Know when you actually need to register: While it can be beneficial to register before you hit the threshold, it also creates more work for your business. Look at your turnover carefully and determine if you’ve hit the VAT threshold (or are about to). This way, you can be strategic regarding when you register and avoid unnecessary administrative work.
Use a service provider to keep things organized: Providers such as Stripe have tools that can help businesses manage VAT efficiently. With Stripe, these include:
- Stripe Tax: This feature automates VAT calculation and collection. It determines the correct VAT rate based on your customer’s location and the product type, and it ensures accurate tax amounts are applied to each transaction.
- Tax code system: Stripe has a proprietary tax code system that maps to global tax codes. Stripe automatically applies the correct tax rules and rates by selecting the appropriate tax code for your products or services.
- Stripe Invoicing: Stripe can help make it easy to generate VAT-compliant invoices that include necessary details such as your VAT registration number and the VAT amount charged. This ensures your invoices meet regulatory requirements.
- Customer location determination: Stripe uses location information, such as currency and zip code, to determine where customers are located. This information helps apply the correct VAT rate in compliance with tax regulations.
- Reporting and filing assistance: Stripe also partners with global tax filing services to assist with filing.
- Stripe Tax: This feature automates VAT calculation and collection. It determines the correct VAT rate based on your customer’s location and the product type, and it ensures accurate tax amounts are applied to each transaction.
Understand what you can reclaim: One major perk of VAT registration is reclaiming VAT on business expenses. Research what counts, so you can reclaim the funds you’re entitled to.
Stay organized right from the start: As soon as you register, you need to start keeping detailed records of your sales and expenses, so make sure to set up a system right away.
Plan for the transition: If you’re registering after being in business for a while, you’ll need to adjust how you price your products or services to include VAT. Communicate clearly with your customers so they’re not surprised by the change.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.