When must a limited company register for VAT?
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Missing the VAT registration point is one of the most expensive mistakes a growing company makes, because HMRC can charge the VAT you should have collected even if you never charged it to customers. The rules are simple once you know the two tests.
The two tests
The threshold is £90,000 of taxable turnover (GOV.UK).
- Looking back: at the end of every month, add up your taxable turnover for the last 12 months. If it's over £90,000, you must register within 30 days of the end of that month. You're registered from the first day of the second month after you went over.
- Looking forward: if you expect your taxable turnover to go over £90,000 in the next 30 days alone, for example because of a large contract, you must register by the end of that 30-day period.
The 12 months are rolling, not your financial year. A company that grows steadily often crosses the line mid-year without noticing.
Check it every month
Add a simple rolling 12-month turnover figure to your monthly management accounts. Most accounting software, such as Xero* or Sage*, can produce it as a report.
Should you register before you have to?
You can register voluntarily below the threshold. It often makes sense if:
- most of your customers are VAT-registered businesses, who can reclaim the VAT you charge
- you have large set-up costs and want to reclaim the VAT on them
- you'll cross the threshold soon anyway
It usually doesn't suit companies selling mainly to the public, because your prices go up by 20% or your margin goes down. Once you're registered, VAT returns go through software that works with Making Tax Digital.
General information only, not professional advice. Rules and products change; check GOV.UK or with an accountant before acting.