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When To Register Your Business For VAT

Have you reached the threshold?

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Many businesses feel that registering for VAT is the right thing to do, but are you sure it's the best thing right now?

Deciding whether to register your business for VAT is a big decision for any business owner!

Deciding whether to register your business for VAT is a big decision for any business owner!

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Any trading business should consider being VAT registered, voluntarily to start with, but then it is compulsory when the value of sales goes over the VAT threshold so you need to keep an eye on how your sales are performing.

"Currently VAT registration is only compulsory when you reach £85,000 on a rolling 12-month basis on sales made in the United Kingdom!"

And you should only include sales of goods and services that attract standard, reduced or zero-rated VAT, together with any imported services to which a reverse-charge applies.

Any sales that are exempt from VAT, or outside the scope of it are ignored which means if you only provide services overseas, it is not required to register. In fact, if this is all you do, then registration is not allowed.

When you are considering the need to register, you must be aware of the following two tests:

  • The 'backward look'

    Tested over a rolling 12-monthly basis, registration is required once you exceed the threshold at the end of those 12 months. The effective date of registration is the first day of the second month after the limit has been reached.

  • The 'forward look'

    If you exceed the threshold in any one 30-day period alone, then the registration date is the beginning of that 30-day period.

If the VAT threshold has been breached you should also consider if the increase in sales was due to a one-off event outside of your normal trading patterns as it is possible to ask for an exception from registration.

Where this has occurred and you can demonstrate that sales in the following 12 months did not exceed the deregistration threshold of £83,000 HMRC may (and I haven’t said will) grant an exception from registration.

Why would a business not breaching the threshold voluntarily register VAT? The answer is simply to recover VAT on its purchases. Providing the customers are VAT registered themselves this will work, but if the customers are not VAT registered are they prepared to pay VAT on the sale price or will they find someone who does not apply VAT? So it’s all down to the maths and commerciality.

"Would you like to know more?"

If you'd like to find out more about VAT and when you should register your business, do give me a call on 01908 774320 or click here to ping me an email and let's see how I can help you.

Until next time ...

Business Godparent

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More about Roger Eddowes ...

Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.