In the first part of this series, we looked at the basic principles of VAT and how it is paid to and from HMRC. Now we are going to talk about whether you should register for VAT.
Do I need to register for VAT?
If your trading income is £90,000* or more over a 12 month period then you must register for VAT. Note that this is your income not your profit, and that it requires you monitor your income in a way that is perhaps not intuitive.
If you think you might be nearing the threshold it is important that you start to monitor on a rolling 12 month basis as there are fines for not letting HMRC know within 30 days of breaching the threshold.
A rolling 12 month basis means you need to look at the current month and the previous 11 months as one year. Most businesses tend to look at their financial year only, so this is a slightly different way of thinking about their business.
If you don’t need to register due to reaching the threshold, you may still want to opt to register voluntarily.
Should I voluntarily register for VAT?
It is worth considering voluntarily registering for VAT if you are likely to be reclaiming more VAT than you will be due to pay. This could possibly happen if VAT on your purchases is a much higher than those on your sales, possibly because you are a seasonal business.
It is also possible all of your customers are VAT registered and you think it would have no impact on their decision to purchase from you if you were to also charge them VAT. Therefore you would be in a better position by registering for VAT as you would be able to reclaim the VAT on your purchases.
You may also expect to breach the threshold at some point in the future and decide to register early to get prepared, ensure you are ready and also so that you don't then later need to inform all of your clients about the change.
It will obviously be worth working through all of the consequences voluntarily registering for tax before deciding to do so.
Can I backdate my registration?
You can’t backdate your registration, however one thing you can do when you register for VAT is to reclaim the VAT on anything you have purchased previously and still have in your possession, which can extend back to purchases within the last 4 years. You can also reclaim VAT on services within the last 6 months.
Impact of registering for VAT
As soon as you are registered for VAT, you will need to charge it on all sales to all customers (unless what you are selling is Exempt from VAT). This will mean that your prices will increase. However if your customer is also VAT registered then it should hopefully not have a significant impact in their choice to use you as their supplier as they will be able to reclaim that VAT from HMRC on their next VAT return.
You will also obviously need to submit VAT returns to HMRC. There is a lot of record keeping involved in this, and it will incur more expense with your accountant or take up more of your time. We will discuss this in the final part of this series.
Different rates of VAT
There are three different rates of VAT as well as an exemption for certain goods. Most goods or services will be Standard Rated. This means that they will incur the highest rate of VAT which is currently 20%.*
The next category is reduced rate VAT of 5%. Some goods and services will fall into this category. Items such as children’s car seats and home energy supplies fall into this. Other items fall into the 0% rate of VAT. These are things like food and children’s clothes. The idea is to reduce the burden on the consumer for some of the most essential items.
However the logic of HMRC is a thing of mystery. Certain items will fall into one category whereas other extremely similar items will fall into another category. The well known Jaffa Cake court case on whether it was a biscuit or a cake was a debate about about which category they would fall into in terms of VAT. There is a lot of case law around these sort of technicalities.
Some goods are exempt from VAT. The main difference between this and the zero-rated supplies is due to technical issues around reclaiming VAT on your purchases. Examples of exempt items are insurance, education, fundraising, membership subscriptions and sales of certain properties.
Final part
In the final part of this 3-part blog series, we will talk about the choices you might have to make when registering for VAT, as well as all the record keeping that is required.
* Note that these are the current numbers as of September 2025. If you are reading this at a later date, please ensure that you check the latest figures.
