When Does a London Business Need to Register for VAT?

For many growing London businesses, VAT registration arrives sooner than expected. The threshold sounds simple, but the way it's measured catches people out, and registering late can be expensive. Here's how it works.

The VAT registration threshold

You must register for VAT if your VAT taxable turnover goes over £90,000. Taxable turnover is the total of everything you sell that isn't exempt from VAT. Zero-rated sales count towards it; exempt sales don't.

There are two separate tests, and you have to register if you meet either one.

The backward look: a rolling 12 months

At the end of every month, add up your taxable turnover for the previous 12 months. If it's over £90,000, you must register. This is a rolling total, not a tax year or your company's financial year. A business can pass the threshold in any month.

The forward look: the next 30 days

You must also register if you expect your taxable turnover to go over £90,000 in the next 30 days alone. This usually applies when a business wins a large contract or makes a big one-off sale.

Deadlines for registering

Under the backward look, you must register within 30 days of the end of the month in which you went over. Your registration then takes effect from the first day of the month after that.

For example, if your rolling total passes £90,000 at the end of June, you must register by 30 July, and you'll be VAT registered from 1 August.

Under the forward look, you must register by the end of that 30-day period, and you're registered from the start of it.

What happens if you register late

HMRC will treat you as registered from the date you should have been. That means you can owe VAT on sales you've already made, even though you never charged it to your customers. Penalties can apply too. If you think you may have missed the threshold, it's better to act quickly and take advice.

Should you register voluntarily?

You can register before you reach the threshold. It can make sense when:

• most of your customers are VAT-registered businesses, who can reclaim the VAT you charge
• you have significant costs or equipment purchases with VAT on them that you could reclaim
• you want to appear more established to larger clients

It's usually less attractive if you sell mainly to the public, because they can't reclaim VAT and your prices effectively rise. It also adds quarterly returns and record keeping.

VAT schemes worth knowing about

• Flat Rate Scheme: you pay a fixed percentage of your turnover, set by your type of business, rather than working out VAT on every sale and purchase. It can save time, but it doesn't suit every business
• Cash Accounting Scheme: you pay VAT when your customers pay you, not when you invoice. Useful for cash flow, and open to businesses with taxable turnover up to £1.35 million
• Annual Accounting Scheme: one VAT return a year, with advance payments during the year, also for businesses with turnover up to £1.35 million

Once you're registered

• charge VAT on your sales at the right rate and show your VAT number on invoices
• keep digital records and file returns through Making Tax Digital compatible software
• file and pay each return within 1 month and 7 days of the end of the VAT period
• keep your bookkeeping current, so each return is a quick check rather than a rush

Keep an eye on the threshold every month

The simplest way to avoid registering late is to check your rolling 12-month turnover at every month end. With up-to-date books, it's a two-minute job. Our monthly bookkeeping checklist includes it.

How Liberty Financial can help

We monitor the VAT threshold for our clients, handle registration, advise on the right scheme and prepare and file VAT returns in Xero. If you're getting close to £90,000, or think you may already have gone over, get in touch. You may also find our outsourced bookkeeping service useful.

Thresholds and limits are based on HMRC guidance at the time of writing. They can change at a Budget, so check the latest figures before acting.