VAT Registration UK: When, Why & How to Register Your Business

Value Added Tax (VAT) is a consumption tax charged on most goods and services sold in the UK. When your business becomes VAT-registered, you act as a tax collector for HMRC—charging VAT on your sales, reclaiming VAT on business purchases, and submitting regular returns.

VAT registration transforms how you operate. You'll charge 20% VAT on most sales (or 5% or 0% for specific goods as outlined at https://www.gov.uk/vat-rates), show VAT separately on all invoices, keep detailed digital records, and file quarterly returns through Making Tax Digital-compatible software.

The VAT registration threshold stands at £90,000 for the 2025-2026 tax year. This threshold applies to your taxable turnover over any rolling 12-month period.

Taxable turnover includes:

• Standard-rated sales (20% VAT)
• Reduced-rated sales (5% VAT)
• Zero-rated sales (0% VAT)

Taxable turnover excludes:

• VAT-exempt sales
• Sales outside the UK
• Sales made before you started trading

Understanding which sales count toward the threshold prevents unexpected registration requirements:

Taxable supplies (count toward threshold):

• Most goods and services
• Zero-rated items like most food, children's clothing, books

Exempt supplies (don't count):

• Insurance services
• Postal services
• Education and training
• Health services
• Financial services

You must register for VAT if either of these conditions applies according to official guidance:

At the end of any month, your taxable turnover for the previous 12 months exceeds £90,000. You have 30 days from the end of that month to register.

At any time, you have reasonable grounds to believe your taxable turnover will exceed £90,000 in the next 30 days alone.

Tracking turnover accurately prevents surprise breaches:

• Record every invoice date and net value (excluding VAT)
• Each month, sum the previous 12 months' taxable sales
• Set alerts at 75% (£67,500) and 90% (£81,000) of the threshold
• Use MTD-compliant software like Xero, QuickBooks, or FreeAgent for automatic tracking

• Calculating by financial year instead of rolling 12 months
• Including VAT in turnover calculations
• Forgetting to include zero-rated sales
• Not accounting for large one-off sales

You can register for VAT voluntarily even with zero turnover. This makes sense when:

If you're investing heavily in equipment, premises, or inventory, voluntary registration lets you reclaim VAT on these purchases. You can reclaim VAT on goods purchased up to four years before registration and services up to six months before.

When selling primarily to VAT-registered businesses, adding VAT doesn't disadvantage you—your clients reclaim it anyway. Being VAT-registered can signal credibility and established operations.

Planning major capital expenditure? Register voluntarily just before purchase to reclaim the VAT immediately.

• Quarterly VAT returns
• Digital record-keeping requirements
• Making Tax Digital compliance
• More complex accounting

If you sell to non-VAT-registered businesses or consumers, adding 20% VAT may reduce competitiveness unless you absorb the cost.

You collect VAT from customers but must pay it to HMRC, creating potential timing gaps between receiving VAT and paying it quarterly.

Gather these before starting your registration:

• Company registration number
• Registered office address
• Unique Taxpayer Reference (UTR)
• Business bank account details
• Annual turnover figures (past 12 months)
• 12-month turnover forecast

• National Insurance number
• Date of birth
• Identity document (passport or driving licence)
• Business bank account details
• UTR if registered for Self Assessment
• Turnover figures and forecasts

• Business trading name and activities description
• Date you exceeded the threshold or expect to
• VAT scheme choice (if applicable)

Most businesses register through HMRC's Government Gateway portal. HMRC aims to process applications promptly. Industry sources suggest most straightforward applications are completed within 2-4 weeks, though HMRC may take up to 40 working days (approximately 8 weeks) if additional verification is needed. Contact HMRC if you haven't received confirmation after 40 working days.

If you don't have a Government Gateway ID, create one during the registration process. You'll receive a 12-digit activation code by post within 10 days (21 days if abroad).

• Sign in to your Government Gateway account
• Navigate to "Get another tax, duty or scheme"
• Select VAT
• Choose your reason for registering (mandatory or voluntary)

Provide detailed information about:

• Business structure and activities
• Trading history and turnover
• Bank details for VAT repayments
• Effective registration date
• Chosen VAT scheme (if applicable)

After submission, HMRC will:

• Send confirmation email with reference number
• Process your application
• Mail your VAT registration certificate
• Provide your 9-digit VAT number

Choose the right scheme based on your business model:

Standard VAT Accounting

• Best for: Most businesses
• Turnover limit: No limit
• Key benefit: Full VAT reclaim on purchases
• Key drawback: More complex accounting

• Best for: Low expense businesses
• Turnover limit: £150,000
• Key benefit: Simplified calculations, potential cash benefit
• Key drawback: Cannot reclaim most VAT

• Best for: Businesses with slow-paying customers
• Turnover limit: £1.35 million
• Key benefit: Account for VAT when paid, not invoiced
• Key drawback: Limited benefit if clients pay promptly

Under standard VAT accounting, you:

• Charge VAT at the appropriate rate on all sales
• Reclaim VAT on business purchases
• Submit quarterly returns showing VAT charged minus VAT paid
• Pay the difference to HMRC (or receive a refund if you've paid more)

The Flat Rate Scheme simplifies VAT accounting by applying a fixed percentage to your gross turnover (including VAT). This works well for businesses with low VAT-reclaimable expenses.

Benefits:

• Simpler accounting
• Potential cash benefit if your expenses are low
• Predictable VAT liability

Limitations:

• Can't reclaim VAT on most purchases
• Only available if turnover is below £150,000
• Must use for minimum 12 months

This scheme lets you account for VAT when payment is received or made, rather than when invoices are issued. It helps businesses with slow-paying customers manage cash flow better.

Available if your turnover is below £1.35 million.

From your effective registration date:

• Add your VAT number
• Show VAT separately
• Use correct VAT rates (20%, 5%, or 0%)
• Include specific VAT invoice requirements

Notify existing clients that VAT will apply to future invoices. Consider your pricing strategy—will you absorb VAT or pass it on?

Making Tax Digital (MTD) requires all VAT-registered businesses to:

• Keep digital VAT records
• Use MTD-compatible software
• Submit returns through approved software
• Retain records for six years

Spreadsheets are allowed only if digitally linked to approved software—no manual copying and pasting.

Yousign's electronic signature and document management platform helps UK businesses maintain compliant records of all VAT-related invoices, supplier contracts, and HMRC correspondence. Our solution ensures:

• Secure digital storage of VAT documentation for the required 6-year retention period
• Legally valid electronic signatures on supplier agreements and contracts
• Audit-ready document trails that satisfy Making Tax Digital requirements
• Seamless integration with your existing accounting workflows

Most businesses file quarterly VAT returns (https://www.gov.uk/submit-vat-return):

• Submit online through MTD software
• Deadline: one month and seven days after period end
• Pay any VAT owed by the same deadline

The Mistake: Not registering within 30 days of exceeding the threshold.

The Consequence: You'll owe backdated VAT from when you should have registered, plus penalties and interest charges. According to HMRC guidance, penalties for late registration are:

• 5% if less than 9 months late
• 10% if 9-18 months late
• 15% if more than 18 months late

The Solution: Monitor turnover monthly and register immediately upon breach. If you realize you're late, voluntarily disclose to HMRC—early disclosure demonstrates good faith and HMRC may reduce penalties based on the circumstances, including whether you disclosed voluntarily, your reasonable excuse, and your compliance history.

• The Mistake: Including VAT in turnover calculations or excluding zero-rated sales.
• The Consequence: Either premature registration (adding unnecessary administration) or late registration (triggering penalties).
• The Solution: Always calculate turnover excluding VAT. Include all standard-rated, reduced-rated, and zero-rated sales. Exclude only exempt supplies. 

• The Mistake: Not informing HMRC of changes to business structure, address, or bank details.
• The Consequence: Missed correspondence, payment processing problems, compliance issues.
• The Solution: Update details promptly through your Government Gateway account whenever changes occur.

• The Mistake: Selecting a VAT scheme without understanding implications or eligibility requirements.
• The Consequence: Unnecessary costs, complex accounting, or ineligibility issues requiring scheme changes.
• The Solution: Consult with an accountant to model different schemes based on your specific business circumstances.

Yousign's electronic signature solutionshelp businesses manage the documentation required when changing VAT schemes or updating HMRC registrations, ensuring all paperwork is completed accurately and submitted promptly.

You can voluntarily deregister if your taxable turnover falls below £88,000 and you expect it to stay below this level.

The deregistration threshold sits £2,000 below the registration threshold to prevent businesses from constantly registering and deregistering due to minor fluctuations.

• Business Downsizing: If you're scaling back operations and turnover will remain consistently below £88,000.
• Selling Mainly to Consumers: If most customers are non-VAT-registered and removing the 20% VAT surcharge would improve competitiveness.
• Reducing Administration: If VAT compliance costs (software, accounting time) outweigh the benefits of input VAT reclaiming.

• Final VAT Return: You'll need to submit a final return accounting for VAT on assets you keep.
• Cannot Re-register Immediately: HMRC may question immediate re-registration after voluntary deregistration, particularly if circumstances haven't genuinely changed.
• Customer Communication: Inform clients of the change and update all invoicing systems.

Successful VAT registration requires forward planning, accurate record-keeping, and understanding your ongoing obligations. Whether you're approaching the mandatory threshold or considering voluntary registration, preparing properly helps you avoid penalties and administrative headaches.

Key planning steps include:

• Monitor turnover monthly using digital accounting tools that calculate rolling 12-month totals
• Set threshold alerts at 75% and 90% to prepare for registration in advance
• Gather required documents before starting your application to ensure smooth processing
• Choose the appropriate VAT scheme based on your business model and expense profile
• Communicate with clients about pricing changes and VAT implementation timeline
• Invest in MTD-compatible software before your registration date to ensure smooth transition

Managing VAT registration involves significant documentation: registration forms, client notifications, invoice template updates, and ongoing compliance records. Yousign's electronic signature and document management platform streamlines this paperwork, allowing you to:

• Send and receive signed VAT-related documents instantly
• Maintain secure digital audit trails for HMRC compliance
• Store all VAT documentation in organized, easily accessible formats
• Reduce administrative time spent on compliance paperwork
• Ensure six-year record retention as required by Making Tax Digital

At Yousign, our digital document management approach helps businesses maintain secure, organized records of all VAT-related documentation, invoices, and compliance certificates—ensuring you're always audit-ready.