VAT is one of the most misunderstood parts of running a UK business. This guide explains when you must register, when you might choose to, and how to stay compliant under Making Tax Digital.
What is VAT?
Value Added Tax is a tax on most goods and services, charged at the standard rate of 20% (with reduced and zero rates for some items). VAT-registered businesses add VAT to their prices, pass it to HMRC, and reclaim the VAT they pay on their own costs.
When you must register
You must register for VAT if:
- Your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period, or
- You expect to exceed £90,000 in the next 30 days alone.
"Rolling 12 months" is key — it's not your tax year. Check your trailing 12-month turnover regularly so you don't register late and face penalties. Good bookkeeping software can monitor this for you.
Voluntary registration
You can register below the threshold, which can make sense if:
- You sell mainly to VAT-registered businesses that can reclaim the VAT.
- You incur lots of VAT on costs you'd like to reclaim.
- You want your business to appear more established.
The downside: you must charge VAT to customers (a problem if they're consumers who can't reclaim it) and handle quarterly returns.
The main VAT schemes
| Scheme | How it works | Good for |
|---|---|---|
| Standard | Pay VAT charged minus VAT on costs | Most businesses |
| Flat Rate | Pay a fixed % of turnover | Low-cost service businesses |
| Cash Accounting | Account for VAT when paid, not invoiced | Cash-flow management |
| Annual Accounting | One return a year with instalments | Simplicity |
How VAT returns work
Most businesses file quarterly. Your return reports the VAT you've charged (output tax) and the VAT you've paid (input tax); you pay the difference to HMRC, or reclaim if you've paid more than you've charged.
VAT and Making Tax Digital
All VAT-registered businesses must follow MTD for VAT: keep digital VAT records and file returns through compatible software. Manually typing figures into HMRC's portal is no longer allowed. Our MTD guide covers the wider picture, and MTD-compliant software keeps your VAT records ready automatically.
Charging and reclaiming correctly
Once registered, every invoice must show your VAT number and the VAT charged — invoicing software handles this automatically. Keep evidence (receipts) for the VAT you reclaim on costs; AI expense capture extracts the VAT for you.
Frequently asked questions
When must I register? When taxable turnover exceeds £90,000 on a rolling 12-month basis, or you expect to within 30 days.
What's the threshold? £90,000 to register; £88,000 to deregister.
Do I have to use MTD? Yes — all VAT-registered businesses must keep digital records and file via software.
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