VAT is the tax that most often goes wrong in small businesses, for a simple reason: it is not your money. You collect it on HMRC's behalf, it sits in your bank account looking like working capital, and then it is due. Businesses that treat the VAT account as spendable cash get into trouble every time.
When you have to register
You must register when your taxable turnover in any rolling twelve months exceeds £90,000, or when you expect to exceed it within the next 30 days. It is a rolling test, not a financial-year test — a strong summer can trigger it well before your year-end.
Once you cross the line, you have 30 days from the end of that month to register. Miss it, and HMRC can charge you the VAT you should have collected but did not, plus a penalty.
Our VAT calculator shows how much headroom you have against the £90,000 threshold, and adds or strips VAT from any figure.
Registering voluntarily
You can register below the threshold, and sometimes you should. It makes sense if you sell mainly to VAT-registered businesses who reclaim it anyway, if you have significant input VAT on stock or equipment, or if being visibly unregistered signals to prospects that you turn over less than £90,000.
It rarely makes sense if you sell to consumers, because you either absorb the 20% or raise your prices by it. We will tell you which side of that line you are on.
Choosing the scheme
- Standard accounting — reclaim input VAT on everything you buy. The default, and the right answer for most businesses with real costs.
- Flat Rate Scheme — pay a fixed percentage of gross turnover and mostly stop reclaiming input VAT. Can suit low-cost service businesses, though the limited cost trader rules removed much of the benefit.
- Cash accounting — account for VAT when invoices are actually paid rather than when raised. Valuable if your customers pay slowly.
- Annual accounting — one return a year with instalments, which reduces admin but delays visibility.
The right scheme depends on your margin structure and how quickly you get paid. It is worth ten minutes of arithmetic, and it is a decision people frequently get wrong by default.
Making Tax Digital for VAT
All VAT-registered businesses must keep digital records and file through MTD-compatible software. Typing figures into HMRC's website is no longer an option, and there must be a digital link between your records and the return — copying and pasting through a spreadsheet does not qualify.
We handle this end to end: software set up correctly, digital links in place, returns prepared and reviewed, then filed. You see the figures and approve them before anything is submitted.
The awkward cases
Some situations need genuine care rather than a rule of thumb: the domestic reverse charge for construction services, partial exemption where you make both taxable and exempt supplies, the margin scheme for second-hand goods, and place-of-supply rules for selling digital services or goods overseas. If any of those describe you, get advice before registering rather than after.