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 at any time, your taxable supplies for the previous 12 months exceed the current VAT threshold level (currently £85,000 from 1st April 2023), then 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 – at the end of a given month – either threshold applies, 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 threshold increase from April 2024
The VAT registration threshold will rise from £85,000 to £90,000 from April 2024 – following an announcement in the March 2023 Budget.
The deregistration threshold will also increase from £83,000 to £88,000.
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.
The amount of the penalty – subject to a £50 minimum – is a percentage of the tax due since the date you should have registered for VAT.
The percentage ranges from 5% (if you’re less than 9 months late) to 15% (if you’re more than 18 months late).
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 it give a professional impression to be VAT registered, 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 deal with 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 (£83,000 in 2023/4) 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.
