What is VAT?
VAT is a tax on consumer expenditure and is ultimately paid by the final customer. Most business transactions involve the supply of goods or services, and VAT is payable if they are made:
- in the United Kingdom
- by a taxable person
- in the course or furtherance of business and are not specifically exempted or zero-rated
VAT is collected by HM Revenue & Customs and is normally payable quarterly.
When you need to register for VAT
You must register for VAT if:
- your business’s total VAT taxable turnover for the last 12 months was over £85,000 (the VAT threshold)
- you expect your business’s turnover to exceed £85,000 in the next 30 days
Registering for VAT yourself
You can usually register for VAT online at the gov.uk website here. You will need a Government Gateway user ID and password to register for VAT. If you don’t already have a user ID you can create one when you sign in for the first time.
Registering for VAT also creates a VAT online account.
Using an agent to register for VAT
You can appoint an accountant (or agent) to submit your VAT Returns and deal with HMRC on your behalf. Even if you’re using an agent, you can still sign up for a VAT online account when you receive your VAT number (select option ‘VAT submit returns’).
When you can’t register online
There are some instances when you won’t be able to register online, and instead, will need to register by post. Specifically if:
- you want to apply for a ‘registration exception’
- you’re joining the Agricultural Flat Rate Scheme
- you’re registering the divisions or business units of a body corporate under separate VAT numbers
The forms to use when registering by post are:
- form VAT1A if you’re an EU business ‘distance selling’ to Northern Ireland
- form VAT1B if you import (‘acquire’) goods into Northern Ireland worth more than £85,000 from an EU country
- form VAT1C if you’re disposing of assets and you have claimed Directive refunds on them
- When you receive your VAT number from HMRC, you can sign up for a VAT online account (select option ‘VAT submit returns’).
After you’ve registered
Once you’ve registered, you’ll receive:
- a 9-digit VAT number which you must include on all invoices you raise
- information about when to submit your first VAT return and payment
- confirmation of your registration date (known as your ‘effective date of registration’)
You’ll get this in your online VAT account or by post, depending on how you registered.
If you’ve already registered for VAT and you’re waiting to hear back, check when you should expect a reply.
When you can start charging and reclaiming VAT
Accounting for VAT while you wait for your VAT number
You can’t include VAT on your invoices until you get your VAT number but you can increase your prices to account for the VAT you’ll need to pay to HMRC.
On 1 October you arrange a £100,000 contract to provide services to a new customer. You register for VAT because you know you’ll go over the threshold in the next 30 days.
Your effective date of registration is 1 October. This means you’ll need to pay VAT to HMRC on any invoices you raise from that date.
To account for the VAT you’ll need to pay, tell your customer that you’ll be adding 20% to the original contract amount of £100,000 and then raise an invoice for £120,000.
After you get your VAT number, reissue the invoice showing the full amount including the £20,000 VAT. Your customer does not need to make any extra payment but can now reclaim the additional £20,000 from HMRC on their next VAT return.
Please note: HMRC permanently closed their VAT registration helpline from 22/05/23. Our blog gives more details and some helpful suggestions.
If you have any questions about registering for VAT, or you would like us to assist you in doing so, please get in touch by email at firstname.lastname@example.org.