Do I need to register my ltd company for VAT?

Registration

VAT is a tax charged on most goods and services in the UK – the ‘standard’ rate is currently 20%. In this guide, we explain when your limited company has to register for VAT.

When do you have to register?

If your taxable supplies for the previous 12 months exceed the current VAT threshold level (£90,000 from 1st April 2024) at any time, your company must register for VAT.

You must also register your business if you expect its turnover to exceed the threshold within the next 30 days alone.

Both the 12-month and 30-day limits work on a rolling basis. So, if either threshold applies at the end of a given month, you need to register for VAT.

Taxable supplies are the value of any goods and services you sell – which are subject to VAT at any rate. In other words, it includes everything your company sells except for anything you sell which is VAT-exempt.

For most companies, this means that your turnover will match the value of your taxable supplies.

VAT registration and deregistration thresholds increased from April 2024

The VAT registration threshold increased from £85,000 to £90,000 from 1st April 2024 – following an announcement in the March 2023 Budget.

The deregistration threshold also increased from £83,000 to £88,000.

You can register even if your turnover doesn’t meet the threshold

You may also decide to register for VAT even if you don’t expect to reach the threshold over the next 12 months.

Most professional contractors and consultants who run limited companies are registered for VAT.

Not only does being VAT registered give a professional image, but it also allows the company to reclaim any VAT it incurs on purchases (such as computer equipment).

If you work via an umbrella company, you don’t need to worry about VAT at all.

Your umbrella company will be registered and will handle any VAT-related responsibilities, such as adding VAT to outbound invoices.

What happens if you go over the registration threshold temporarily?

HMRC allows you to apply for an exemption if you temporarily breach the registration threshold.

You will need to write to them and explain why you don’t think your turnover will exceed the deregistration threshold (£88,000 in 2024/5) over the next 12 months.

Once HMRC has received your information, they will confirm whether or not your request has been approved. If not, your company needs to register for VAT.

You should always check with your accountant before deciding on the right VAT scheme to join.

What happens if you don’t register on time?

HMRC may penalise you if you fail to register your company within the time limits explained above.

There is a points system for late VAT return submissions. It aims to be less punitive on occasional late submitters but more harsh on businesses that regularly submit their returns late.

When you have submitted a certain number of late returns, you will receive an automatic £200 penalty. To reset your penalty points, a taxpayer must complete a good compliance period of up to 24 months.

Late payments of VAT owed trigger daily and fixed penalties. A 2% penalty applies on day 15, with another 2% added on day 30 of an overdue VAT bill.

From Day 31, a new penalty will be calculated at a daily rate of 4% per year for the duration of the outstanding balance.

Don’t forget, HMRC also charges late payment interest on overdue amounts!

If HMRC agrees that there’s a reasonable excuse for late registration, you may not be liable for a penalty. However, there is no formal definition of a reasonable excuse, so it is important to be aware of your VAT responsibilities as soon as you start a business.

More useful VAT information

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