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 How, when, and why your company should register for VAT...

Most business owners are aware that the taxable annual turnover threshold for compulsory VAT registration is £85,000 - but there is often confusion about what counts towards this figure, as well as how and when a business should register.

In this blog post, we'll go over the requirements for VAT registration in greater detail, as well as answer some of the most common questions small businesses still have about VAT...

1) Is it necessary for me to register for VAT?

If your company has a VAT taxable turnover of more than £85,000 in any 12-month period, you must register for VAT.

VAT taxable turnover is the sum of all goods and services sold that are not VAT exempt, which includes sales of zero-rated items (such as most food products, books, newspapers and other items that are charged at 0 percent ).

Importantly, the threshold is applicable to any rolling 12-month period, not just your accounting period, calendar year, or tax year.

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As a result, your annual reports do not provide the complete picture, as it is entirely possible that you will exceed the threshold either side of your fiscal year end - even if you will ultimately fall short of the mark in each fiscal year.

You must also register for VAT if your VAT taxable turnover is expected to exceed £85,000 in the next 30 days.

2) When do I have to register for VAT?

If you exceed the VAT threshold over a 12-month period, you must register for VAT within 30 days of the end of the month in which you exceeded the threshold.

So, if your revenue from April to March exceeds £85,000, you have until the end of April to register. Your 'effective date of registration' will be the first day of the month following, in this case the 1st of May.

If you expect your taxable turnover to exceed the VAT threshold in the next 30 days, the timetable for registration will be slightly different.

You must register for VAT by the end of that 30-day period, but your effective registration is retroactive to the date you realised you would exceed the threshold.

If you know by the 1st of March that your next 30-day sales will exceed £85,000, the 1st of March will be your effective date of registration - regardless of when you register.

3) Are there any exceptions to mandatory registration?

While zero-rated supplies count towards the VAT threshold for the majority of businesses, there may be exemptions for those whose sales are entirely (or mostly) made up of zero-rated items.

This exemption can be requested by checking the appropriate box on the VAT 1 form, which is used to register for VAT.

Exemptions may also be granted if the sales threshold was exceeded due to a rare one-time event that was out of the ordinary for the business.

Indeed, if you can show HMRC that your taxable supplies will not exceed the deregistration threshold (£83,000) in the next 12 months, you may not need to register in the first place.

In either case, it's critical that you notify HMRC when you've reached the threshold - and let the powers that be decide whether or not you're eligible for exemption.

4) Can I voluntarily register for VAT? Could it be beneficial?

Businesses that make taxable supplies below the VAT threshold can choose to register voluntarily, and for many small businesses, this can be beneficial in gaining access to larger VAT-registered clients.

Registering early also ensures that if your turnover does exceed the threshold, you will not face any penalties or backdated bills.

Even for businesses that are required to register, choosing an earlier 'date of registration' can be advantageous.

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Businesses can choose to register retroactively for up to four years from the date of application, allowing them to recover related input tax from customers who are also VAT registered and willing to accept VAT-only invoices.

5) What if I fail to register for VAT on time?

Failure to notify HMRC that you have exceeded (or expect to exceed) the VAT threshold within the required timeframes exposes you to a number of potential penalty fines, as well as backdated payments.

HMRC can impose penalties such as a 'failure to notify' penalty, a 'late registration' penalty, and, in some cases, a 'civil evasion' charge. However, the cost of backdated VAT payments is frequently even more exorbitant. HMRC will try to recoup VAT from the date registration should have been completed, even if you did not charge VAT on the goods and services you sold.