Should I Register My Business for VAT?

VAT registration is amongst the most important financial steps any small business can take. For some business owners it is a difficult decision, involving the weighing up of savings against the potential expense associated with charging VAT. For others, though, it is a necessity; there is a legal obligation to register for VAT once your turnover exceeds a certain amount. So what are the main factors to think about when considering registering for VAT? And when will you be forced to register?

Once you register for VAT, you'll need to factor this into your overall tax obligations, which you can clarify using our free Self Assessment Helper.

Compulsory Registration

Broadly speaking, there are two types of VAT registration: voluntary and compulsory. If your turnover exceeds a certain threshold, or if you purchase a VAT Registered Business, you will be forced into compulsory registration. The threshold for compulsory VAT registrations is set at £90,000 from 1st April 2024. If your turnover exceeds this amount in any 12 months, you are obliged to register. You must register by the end of the month following the month during which your turnover exceeded the threshold. You risk incurring a financial penalty if you fail to register in this period.

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Input and Output Tax

If your turnover does not yet exceed the threshold but you are thinking of registering anyway, you should understand the impact that VAT will have on your business. The key concept here is the distinction between input and output tax. Input tax is the VAT you pay when you buy items that attract the tax from VAT-registered suppliers. Output tax is the VAT you charge your customers.

At the end of each VAT period, if your output tax exceeds your input tax, you will have to pay HM Revenue & Customs (HMRC) the difference. If, on the other hand, your input tax exceeds your output tax, you will be due a refund.

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Previous Form

You should look over your previous few months' trading records and consider whether your output tax would have exceeded your input tax during this period. If it would have, VAT registration may not be the best option for you at this point. As an alternative, you might consider increasing your prices in order to absorb some of the impact of the VAT that you pay your suppliers.

You should also consider the extra work associated with VAT accounting. You will have to Complete A VAT Return at the end of each and every VAT period, and you will also need to introduce VAT lines into your existing accounting practices. That said, if your annual turnover (excluding VAT) is less than £150,000, you may be able to apply for the Flat Rate Scheme. This allows small businesses to calculate their VAT liability as a proportion of their income, which is a far simpler method of accounting that can save you time.

VAT registration is a big step, and one that can have a significant impact on the financial health of your business. If your turnover has not yet exceeded the threshold for compulsory registration, you should think carefully before registering as de-registration can be a difficult and time-consuming process. If in doubt, make sure to consult an account before taking any action.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Self Assessment Helper lets you confused by self assessment? Tell us about your income and circumstances and get a clear guide to what you need to declare, what you can claim, and the key deadlines. Try it now →