What is VAT?
Value Added Tax (VAT) is a consumption tax charged on most goods and services sold in the UK. The standard rate is 20%. If your business is VAT-registered, you must charge VAT to your customers and, in turn, you can reclaim the VAT you pay on your own business purchases.
The VAT Registration Threshold
VAT registration is not always required. You become legally obligated to register for VAT if your "VAT taxable turnover" exceeds a certain threshold.
The Current Threshold:
As of April 2024, the mandatory registration threshold is **£90,000**. This is not based on a calendar year, but on a rolling 12-month period. You must register if:
- Your total VAT taxable turnover for the last 12 months was over £90,000.
- You expect your turnover to go over £90,000 in the next 30 days alone.
Voluntary Registration: Should You Do It?
Even if you are below the £90,000 threshold, you can choose to register for VAT voluntarily. Why would you do this?
Reasons for Voluntary Registration:
- Reclaim VAT: You can reclaim the 20% VAT on your UK-based business expenses, such as software, professional services, or supplies. This can be a significant cost saving.
- Business Credibility: Some larger UK businesses prefer to work with VAT-registered suppliers, as it can be a sign of a more established company.
- Avoid Back-dating: Registering early avoids the risk of crossing the threshold unexpectedly and having to account for VAT retrospectively.
The main downside is the administrative burden. Once registered, you must file quarterly VAT returns and keep detailed records, even if you owe no tax.
Final Thoughts
The decision to register for VAT depends on your business model. If you have significant UK costs or primarily serve other UK businesses, voluntary registration is often a smart move. If your customers are mostly consumers or are based outside the UK, it might be better to wait until you reach the mandatory threshold.