top of page
Search

When Should You Register for VAT (and When Shouldn’t You)?

  • Skyrock Accountants
  • 10 hours ago
  • 4 min read

Registering for VAT can feel like a big step. For many businesses, it’s not always clear when VAT registration is compulsory, when it’s optional, or when it may be better to delay or avoid it altogether.

This guide explains the rules using HMRC guidance, with simple examples to help you decide what applies to your situation.


1. When VAT Registration Is Mandatory

Under HMRC rules, you must register for VAT if your taxable turnover (in plain English: sales that VAT applies to) exceeds the VAT registration threshold.


The current VAT registration threshold

What does “rolling 12 months” mean?

This is not based on:

  • Your accounting year

  • Your tax year

  • Or your company’s year-end


HMRC looks at any continuous 12-month period, reviewed at the end of each month.

Examples:

  • January to December

  • February to January

  • March to February

If your taxable turnover goes over £90,000 in any one of these periods, VAT registration is triggered.


2. What Counts as “Tax

able Turnover”?


Taxable turnover includes all sales that VAT applies to, even if VAT is charged at 0%.

This includes:

  • standard-rated sales (20%)

  • reduced-rated sales (5%)

  • zero-rated sales (0%)


What does not count?

Taxable turnover does not include exempt income, such as:

  • residential property rent

  • certain education services

  • certain health and welfare services


📌 This distinction is critical — and one of the most common reasons businesses register late by mistake.

If you’re unsure whether your income is taxable or exempt, a VAT review can confirm this before HMRC does:👉 Contact Skyrock for your VAT review


3. The Rolling 12-Month Rule (Where Most People Go Wrong)

HMRC requires you to register if:

  • at the end of any month, your taxable turnover for the previous 12 months exceeds £90,000

You must then:

  • Notify HMRC within 30 days

  • Register for VAT from the first day of the following month

Example

If your taxable turnover exceeds £90,000 in July, you must:

  • Notify HMRC by 30 August

  • be VAT-registered from 1 September


What happens if you miss this?

Failing to register on time can result in:

  • VAT backdated to the correct start date

  • penalties

  • interest

  • VAT due that you cannot recover from customers

This often affects:

  • fast-growing businesses

  • contractors

  • property developers

  • charities with trading subsidiaries

  • clubs and community organisations running bars or events


4. When You Should Register for VAT Voluntarily


You do not need to wait until you reach £90,000.

Voluntary VAT registration can make sense if:

✔ You incur significant VAT on costs

For example:

  • equipment

  • professional fees

  • building works

  • marketing and software

You may be able to reclaim VAT, improving cash flow.


✔ Your customers are VAT-registered

If your clients can reclaim VAT, charging VAT usually doesn’t affect your competitiveness.

✔ You want added credibility

Being VAT-registered can:

  • make your business appear more established

  • support tenders, grants, and commercial contracts

We often cover voluntary VAT registration during onboarding:

5. When You Shouldn’t Register for VAT


VAT registration is not always the right move.

You may want to delay or avoid registering if:

❌ Your customers are private individuals

Adding 20% VAT could make your prices uncompetitive.

❌ Most of your income is VAT-exempt


Common examples include:

  • residential rental income

  • certain charity activities

  • education or welfare services


In these cases, you may not be able to reclaim VAT on costs either.


❌ Your turnover is well below the threshold

VAT comes with:


  • quarterly VAT returns

  • detailed record-keeping

  • digital filing under Making Tax Digital (MTD)


For small or early-stage businesses, this admin burden may outweigh the benefits.


6. Special Situations HMRC Looks Closely At


HMRC guidance highlights several higher-risk areas where VAT registration is often reviewed.

Start-ups not yet trading


You can register for VAT before trading if:

  • you intend to make taxable sales

  • you incur VAT on start-up costs

However, timing matters — registering too early or incorrectly can cause issues later.


One-off large contracts


A single contract can unexpectedly push turnover over the threshold, triggering immediate registration.

Charities and community organisations

Charities, CASCs, and clubs are not automatically VAT-exempt.


Many are required to register due to:

  • bar and catering income

  • ticket sales for events

  • commercial lettings


We cover this in detail here:


7. What Happens If You Register Late?


If HMRC decides you should have registered earlier, they can:

  • backdate your VAT registration

  • demand VAT on historic sales

  • apply penalties and interest



In many cases, that VAT cannot be reclaimed from customers — meaning it comes straight out of your profit.

This is why proactive advice matters.

8. Getting VAT Registration Right First Time

The decision to register for VAT should be based on:

  • taxable vs exempt income

  • who your customers are

  • pricing strategy

  • cash-flow impact

  • long-term business plans

There is no one-size-fits-all answer.


At Skyrock Accountants, we help businesses and charities:

  • assess whether VAT registration is required

  • decide if voluntary registration makes sense

  • register correctly with HMRC

  • stay compliant with MTD

  • avoid penalties and unexpected VAT bills



Comments

bottom of page