If you run a small business in the UK, chances are you’ve wondered if you need to register for VAT. VAT is one of the most common areas of confusion for startups and growing businesses. The rules can feel complicated and the last thing any business owner wants is a surprise tax bill or penalty.
In this article, we’ll break VAT down into simple terms, explain the VAT registration threshold and help you decide whether voluntary registration might be right for your business.
What Is VAT and How Does It Work?
VAT is a tax charged on most goods and services in the UKand businesses collect it on behalf of HMRC.
The current VAT rates are:
- Standard rate (20%) – applies to most goods and services
- Reduced rate (5%) – for things like home energy and children’s car seats
- Zero rate (0%) – includes most food, books and children’s clothes
If your business is VAT registered, you’ll need to charge VAT on your sales and you can reclaim VAT you’ve paid on eligible purchases.
Do You Need to Register for VAT?
VAT registration becomes mandatory if:
- Your business turnover (sales, not profit) hits the VAT threshold (£90,000 for 2025) in a rolling 12-month period
- Or if you expect turnover to go over the threshold in the next 30 days
Important: this is calculated on a rolling 12 months, not by calendar year or financial year.
Failing to register on time can result in backdated VAT bills, penalties and interest.
Should You Register Voluntarily?
Even if you’re under the threshold, you can choose to register voluntarily.
Advantages:
- You can reclaim VAT on your business purchases, which is great if you have large costs
- It can make your business look more established which isbeneficial if you deal with larger VAT-registered companies
Disadvantages:
- More admin.You’ll need to file VAT returns (usually quarterly)
- If most of your customers are individuals or small businesses who aren’t VAT registered, adding 20% VAT to your prices could make you less competitive
The decision often comes down to your type of customers and your cost base.
Different VAT Schemes for Small Businesses
HMRC offers a few schemes to make VAT easier for smaller businesses:
- Flat Rate Scheme – pay a fixed percentage of your turnover as VAT. This can reduce paperwork
- Cash Accounting Scheme – only pay VAT when your customers pay you (not when you invoice them). Helpful for cash flow
- Annual Accounting Scheme – file one VAT return per year instead of four, with advance payments spread across the year
Choosing the right scheme can save time and money, but it’s not one-size-fits-all.
What Happens If You Don’t Register on Time?
If you miss your registration deadline:
- You may have to pay VAT backdated to the date you should’ve registered
- HMRC can charge penalties and interest
Do You Need Professional Help?
VAT is one of those areas where a little professional advice can save a lot of money and stress.An accountant can:
- Advise if VAT registration is right for your business
- Help you pick the best VAT scheme
- Submit the application to register for VAT
- Ensure you’re compliant while keeping tax bills as low as legally possible.
VAT can seem complicated, but it doesn’t have to be overwhelming. The key is knowing the rules, registering on time if you need to and choosing the right scheme for your business.
If you’re unsure whether you should register for VAT or you want peace of mind that your business is set up correctly, get in touch with Raine Accountants today. We’ll make sure you’re on the right track.