Do I have to register for VAT?

Do I have to register for VAT?

There is a myth that every legitimate business is required to be VAT registered. This is not the case.


Your business (as a sole-trader, partnership or company) does not have to become VAT registered until the total sales for 12 consecutive months exceeds £85,000. However, this total does apply to all the businesses you run and you can’t artificially divide your businesses to avoid registering for VAT.


Once your business is VAT registered you must charge VAT at the appropriate rate (normally 20%) on your sales. You also have to submit regular VAT returns, either quarterly or monthly, which means you need to keep your records of sales and purchases up to date.


If this all sounds a bit too much to cope with there are a number of schemes you can sign up to which are designed to make VAT reporting much easier for small businesses. We’ll talk about three of the most commonly used schemes for now:


Standard Accounting. Using standard VAT accounting, you must complete four VAT Returns each year. Any VAT due is payable quarterly and any VAT refunds due to you are also repayable quarterly. You pay VAT on your sales whether or not your customer has paid you.

Cash Accounting Scheme. Using this scheme you pay VAT on your sales when your customers pay you and you reclaim VAT on your purchases when you have paid your supplier. This scheme can offer you cash flow advantages and is useful if there is often a delay between the time that you issue VAT invoices to your customers and when you actually receive payment from them.

Flat Rate Scheme. When you use this scheme you don’t have to worry about your purchases. You just have to total-up your sales each quarter and pay over a flat percentage as VAT to the Taxman. From April 2017, the Government introduced a new 16.5% flat rate VAT scheme that many ‘labour-only’ businesses, such as contractors, have to move to. This increased the rate at which VAT is paid under the Flat Rate scheme for many businesses, which means you need to review your VAT status. Ask your accountant if this scheme is still beneficial for you.


Some people prefer to keep their total sales below the compulsory VAT registration threshold, so they don’t have to charge VAT and submit VAT returns. They do this by turning down work that would take them over the VAT threshold. This is not illegal, but HMRC may be suspicious of businesses who manage their sales in this way. If you use this strategy to avoid VAT registration, you need to be able to prove all your sales are correctly recorded and declared.