VAT Registration Guide UK

What Is VAT and Why Does It Matter?

Value Added Tax (VAT) is a consumption tax applied to the sale of most goods and services in the UK. It is collected by businesses on behalf of HMRC and paid over periodically. For business owners and self-employed professionals, understanding VAT registration is critical — getting it wrong can result in significant penalties, or missing out on the opportunity to reclaim VAT on business purchases.

VAT is charged at every stage of the supply chain, but the tax ultimately falls on the end consumer. VAT-registered businesses act as collectors — they charge VAT to customers (output tax) and reclaim the VAT they pay on their own purchases (input tax), paying the difference to HMRC.

The UK introduced VAT in 1973 when it joined the European Economic Community. Since Brexit, the UK has set its own VAT rules independently of the EU, though the broad framework remains similar.

The VAT Registration Threshold

The most important number for any business owner to know is the VAT registration threshold. For the 2024/25 tax year and continuing into 2025/26, the threshold is £90,000 of taxable turnover in any rolling 12-month period.

Important points about the threshold:

• The threshold is based on the past 12 months of taxable turnover, assessed on a rolling basis — not just the tax year.
• It includes zero-rated supplies but not VAT-exempt supplies.
• If you expect your turnover to exceed £90,000 in the next 30 days alone (based on a specific contract or order), you must register immediately.
• There is a deregistration threshold of £88,000 — if your turnover drops below this, you can apply to deregister.
• The threshold was raised from £85,000 to £90,000 in April 2024 — the first increase since 2017.

Compulsory vs Voluntary VAT Registration

Compulsory Registration

You must register for VAT if any of the following apply:

• Your taxable turnover exceeds £90,000 in the past 12 months
• You expect your taxable turnover to exceed £90,000 in the next 30 days
• You take over a VAT-registered business (you may need to register as a transfer of going concern)
• You are an overseas business making taxable supplies in the UK (no threshold applies — you must register from the first supply)

Voluntary Registration

You can register voluntarily if your taxable turnover is below £90,000. Voluntary registration may make sense if:

• Most of your customers are VAT-registered businesses who can reclaim the VAT you charge
• You spend significantly on VAT-able inputs (equipment, materials, professional services) and want to reclaim that VAT
• You want to appear more established or credible to larger business customers
• You have zero-rated sales and significant input VAT to reclaim — meaning HMRC regularly repays you

Voluntary registration is generally not advantageous if most of your customers are consumers (who cannot reclaim VAT), as the 20% price increase can make you less competitive.

UK VAT Rates Explained

The distinction between zero-rated and exempt is important. Zero-rated supplies count towards your taxable turnover (and therefore towards the £90,000 threshold), and you can reclaim input VAT related to zero-rated sales. Exempt supplies do not count towards the threshold, but you generally cannot reclaim input VAT relating to exempt supplies.

How to Register for VAT Online

VAT registration is done through your HMRC Government Gateway account. The process is fully online and typically takes 20–40 minutes.

1. Create or sign in to your Government Gateway account at gov.uk. If you are a sole trader, use your personal account. If you are registering a limited company, use the company's Government Gateway account.
2. Start the VAT registration application (search "register for VAT" on gov.uk or go to your business tax account).
3. Provide business details: business name, address, type of business, bank details, turnover, and the date you need to be registered from.
4. Confirm your identity and that of any directors or partners.
5. Submit the application. HMRC usually confirms your VAT number within approximately 10 working days, though it can take up to 30 days in some cases.
6. You will receive a VAT registration certificate showing your VAT number, effective date of registration, and filing frequency.

Once registered, you must immediately start charging VAT on all taxable supplies, issue VAT invoices to customers, and set up compatible accounting software for MTD compliance.

VAT Return Filing: Schemes and Frequency

Standard Quarterly Returns

Most VAT-registered businesses file VAT returns quarterly. Each return covers three calendar months, and you have one month and seven days after the end of each quarter to file and pay. For example, for the quarter ending 31 March, the return and payment deadline is 7 May.

Annual Accounting Scheme

The Annual Accounting Scheme allows businesses with taxable turnover below £1.35 million to file just one VAT return per year, making nine interim monthly payments (or three quarterly payments) based on estimated VAT liability. This simplifies administration but means you may overpay during the year if your income drops.

Monthly Returns

Businesses that regularly reclaim VAT (e.g., exporters or businesses making mainly zero-rated supplies) may opt for monthly returns to improve cash flow by receiving repayments more frequently.

The VAT Flat Rate Scheme (FRS)

The Flat Rate Scheme (FRS) simplifies VAT accounting for small businesses with taxable turnover (excluding VAT) below £150,000. Instead of recording VAT on every sale and purchase, you pay a fixed percentage of your gross (VAT-inclusive) turnover to HMRC.

You still charge customers the full 20% VAT, but you pay a lower industry-specific percentage to HMRC — keeping the difference as a benefit. The FRS rates vary significantly by business sector:

Note: If you are a "limited cost trader" (spending less than 2% of your VAT-inclusive turnover on goods, or less than £1,000/year on goods), you must use the FRS rate of 16.5%, which significantly reduces the benefit of the scheme.

Making Tax Digital (MTD) for VAT

Making Tax Digital (MTD) for VAT is HMRC's initiative to modernise the tax system through digital record-keeping and electronic filing. The key requirements are:

• All VAT-registered businesses (regardless of turnover) must keep digital VAT records and submit VAT returns using MTD-compatible software, as of April 2022.
• You cannot submit VAT returns manually through HMRC's online portal — you must use approved software.
• Digital records must include details of each supply you make and receive, along with VAT amounts.
• Popular MTD-compatible software includes Xero, QuickBooks Online, Sage 50/Accounting, FreeAgent, KashFlow and many others. HMRC maintains a current list on gov.uk.
• Bridging software is available to link spreadsheets to HMRC's API if you prefer spreadsheet-based bookkeeping.

Penalties for non-compliance with MTD obligations can include surcharges in addition to standard VAT penalties. If you are not yet MTD-compliant, act immediately — HMRC enforcement has been increasing.

VAT on Imports After Brexit

Since the UK left the EU VAT area on 1 January 2021, importing goods from EU countries is treated the same as importing from any other country. The key changes affecting businesses are:

• Import VAT is due on all goods imported into the UK, including from the EU, at the point of importation.
• Postponed VAT Accounting (PVA) allows UK VAT-registered importers to account for import VAT on their VAT return (as both input and output tax) rather than paying it physically at the border. This is highly beneficial for cash flow and is available for goods from any country.
• Customs declarations are now required for imports from the EU — businesses need EORI numbers and must work with freight agents or customs brokers.
• Northern Ireland operates under a special protocol — it is in the UK customs territory but follows EU VAT rules for goods (not services). The NI Protocol is complex and specialist advice is recommended.
• For exports, goods exported outside the UK are zero-rated for VAT. You must keep evidence of export (shipping documents, customs declarations) to support the zero-rating.

VAT Reclaim: What You Can Claim Back

As a VAT-registered business, you can reclaim input VAT on goods and services bought for business purposes. This includes:

• Stock, materials and business supplies
• Equipment and machinery (including computers and office furniture)
• Professional fees (accountants, solicitors)
• Business travel and accommodation
• Software subscriptions used for business
• Business vehicles (with restrictions — see below)
• VAT on goods purchased before registration (up to 4 years before, subject to conditions)

You generally cannot reclaim VAT on:

• Business entertainment (client entertaining)
• Cars bought for mixed business and personal use (you can reclaim 50% for leased cars used partly for business)
• Purchases used for making VAT-exempt supplies
• Private expenditure

Common VAT Mistakes to Avoid

• Missing the registration deadline: Late registration results in backdated VAT obligations and penalties. HMRC can assess VAT due from the date you should have registered, plus interest and penalties.
• Misclassifying supplies: Treating a standard-rated supply as zero-rated or exempt is one of the most common errors. If in doubt, check HMRC's VAT notices or take professional advice.
• Failing to keep valid VAT invoices: To reclaim input VAT, you need a valid VAT invoice showing the supplier's VAT number, the VAT amount, and other required details. Credit/debit card receipts alone are often not sufficient.
• Claiming VAT on non-business items: HMRC can disallow input VAT on personal expenditure, even if it is passed through the business books.
• Non-compliance with MTD: Not using MTD-compatible software exposes you to penalties and surcharges on top of any VAT due.
• Ignoring partial exemption: If you make both taxable and exempt supplies, you must apply partial exemption rules to restrict your input VAT recovery — this is complex and often requires specialist guidance.

Industry-Specific VAT Rules

Construction Industry (CIS and VAT Domestic Reverse Charge)

Since March 2021, the Construction Industry Scheme (CIS) VAT domestic reverse charge applies to most B2B supplies of construction services. Instead of the subcontractor charging VAT to the contractor, the contractor accounts for the VAT themselves (reverse charge). This was introduced to combat VAT fraud in the supply chain. The reverse charge applies when both businesses are CIS-registered and VAT-registered.

Hospitality and Tourism

Restaurants, pubs, hotels and similar businesses experienced a temporary reduced 5% VAT rate during COVID-19. As of 2026, standard 20% VAT applies to the vast majority of hospitality supplies, with the exception of items that qualify as zero-rated food. The distinction between "eat-in" (20%) and "take-away cold food" (0%) remains important for caterers.

Land and Property

VAT on property is complex. The sale of new commercial buildings is standard-rated; the sale of new residential buildings is zero-rated. Most letting of commercial property is exempt, but landlords can elect to waive exemption (the "option to tax") to charge VAT and recover input VAT on costs. Residential property is almost always exempt from VAT on sale or letting.

Frequently Asked Questions About VAT Registration