What is the VAT registration threshold?

VAT for new business owners

Starting a business is busy enough without tax jargon. This guide covers the VAT basics of when you must (or may want to) register, what a VAT Return includes, deadlines, penalties, and how Making Tax Digital (MTD) for VAT works in practice.

1) VAT in a nutshell

VAT is a sales tax you charge on most goods/services you sell (“outputs”), and reclaim on business purchases (“inputs”).

You must register when your rolling 12-month VAT-taxable turnover goes over the registration threshold. From 1 April 2024, the threshold rose to £90,000; the deregistration limit is £88,000.

When to register:

If your last 12 months taxable turnover just went over £90,000, you must register within 30 days of the end of that month. Your effective date is the first day of the second month after you went over.

If you expect to go over the threshold in the next 30 days, register before that 30-day period ends; your effective date is the date you realised you would exceed it.

Important: When calculating whether you exceed the threshold, you must include **all taxable supplies** – this means standard-rated, reduced-rated and zero-rated sales. The only things you exclude are exempt sales (e.g. insurance, certain education or medical services) and most supplies that are outside the scope of UK VAT.

Example: If you only provide B2B consultancy services to clients in the USA, those sales are outside the scope of UK VAT as long as they are B2B and do not include B2C and do **not** count towards the £90,000 threshold. In that case, you may not need to register unless you choose to voluntarily.

Tip: You can also register voluntarily before you hit the threshold (often useful if you buy lots of VATable kit or sell B2B).

2) What’s on a VAT Return?

Most businesses file quarterly but there is a possibility to file monthly or even annually.

The VAT Return summarises 9 boxes (cloud MTD ready software like FreeAgent and Xero will pre-fill these for you).

Key ones:

– Box 1: VAT due on sales (includes reverse charge & Postponed Import VAT Accounting).

– Box 4: VAT you can reclaim on purchases.

– Box 5: Net VAT to pay/reclaim (Box 3 – Box 4).

– Boxes 6–9: totals of sales/purchases values, and NI/EU goods where relevant.

Deadline & payment:

Your filing and payment deadline is one calendar month + 7 days after the period end (allow payment clearing time).

3) Making Tax Digital (MTD) for VAT — the simple version

All VAT-registered businesses must keep VAT records digitally and submit returns through compatible software. HMRC now signs up new VAT registrations automatically to MTD for VAT.

What you must do under MTD:

1. Use compatible software (or bridging software if you keep spreadsheets).

2. Keep digital records: business details, VAT numbers, supplies made/received with date, value, VAT rate, and your VAT account.

3. Ensure digital links from your detailed records through to the VAT Return figures (no copy-paste/manual re-typing).

4. File the return via your software by the deadline.

Note: Exemptions exist (e.g., for people who are digitally excluded due to age/disability, remoteness, or certain religious grounds). You must apply to HMRC if you think this fits you.

4) Records you have to keep (and for how long)

Keep VAT records for at least 6 years (10 years if you use the One Stop Shop). This includes valid VAT invoices, your VAT account, and the digital records required by MTD.

5) Penalties & interest (what happens if you’re late)

Late submission: HMRC uses a points-based system. Hit your points limit and you get a £200 penalty.

Late payment (from April 2025 rules):

• 3% of the VAT still unpaid at day 15, plus another 3% at day 30.

• From day 31: a daily penalty equal to 10% per year until paid.

• Agreeing a Time to Pay with HMRC can stop penalties escalating.

Late-payment interest accrues from day 1. HMRC sets the late payment interest at Bank of England base rate + further X%.

6) Step-by-step: getting set up the right way

1. Check your turnover monthly against the £90,000 rolling 12 month threshold.

2. Register online with HMRC when required (or voluntarily).

3. Choose MTD-compatible software (or bridging).

4. Switch to digital record-keeping and maintain digital links.

5. Raise VAT invoices correctly and capture purchase VAT with valid invoices.

6. File and pay by the deadline (one month + 7 days).

FAQs: VAT & MTD made simple

Do I have to register for VAT as soon as I start my business?
No. You only must register if your VAT-taxable turnover exceeds £90,000 in a rolling 12 months, or if you expect to in the next 30 days. You can, however, register voluntarily if it benefits you.

What is ‘taxable turnover’?
It’s the total value of everything you sell that isn’t exempt from VAT. That includes standard-rated, reduced-rated, and zero-rated supplies. Exempt supplies and most overseas B2B services are excluded.

Can I still use spreadsheets for VAT?
Yes — but only if they are digitally linked to HMRC via approved bridging software. Manual copy-paste or retyping figures is no longer allowed.

How often do I need to file VAT Returns?
Normally every quarter. Some businesses can file monthly or annually (you have to apply).

What happens if I file late?
You’ll get a penalty point. Reach the points limit for your filing frequency and HMRC adds a £200 penalty.

What if I can’t afford my VAT bill?
Don’t ignore it. Contact HMRC as soon as possible to agree a Time to Pay arrangement — this can reduce or prevent escalating penalties and interest.

How long must I keep VAT records?
At least 6 years (10 if using the EU One Stop Shop).

Need tailored help?

We can:

– assess whether voluntary registration makes sense for you,

– set you up with MTD-compliant software,

– review your VAT coding and digital links, and

– handle registrations, returns and Time-to-Pay discussions with HMRC.