The question of when to register for VAT comes up a lot, particularly from those just starting out and those who’ve been in business for a short while and things are starting to grow.
For UK based businesses there are two routes to VAT registration – compulsory, and voluntary.
Compulsory Registration
VAT registration is compulsory when either one of two tests pass. The first is called the historic test, the second the future test. Both of these make reference to the registration threshold, the latest of which can be found here:
https://www.gov.uk/how-vat-works/vat-thresholds
Historic Test
The historic test should be completed at the end of every month, you should look back over the last 12 months and determine whether your total taxable supplies exceed the VAT registration threshold.
For example, at the end of August 2023, you would look at the value of total taxable supplies made by your business between 1st September 2022 and 31st August 2023, and see if this exceeds the VAT registration threshold in force at that time.
This test should be repeated every month, and should always be done on a rolling basis, this means you should always be looking backwards 12 months from the end of the month you are checking; continuing the above example, in September 2023, you should check the value of total taxable supplies made between 1st October 2022 and 30th September 2023.
If the test passes (the total value of taxable supplies made in the 12 month period exceeds the threshold) then you need to register for VAT within 30 days of the end of that month, and start charging VAT from the 1st of the following month.
For example, if your business exceeds the VAT registration threshold in August 2023, you need to register for VAT with HMRC by 30th September 2023 (within 30 days of the end of the month) and start charging VAT to your customers from 1st October 2023.
Future Test
The future test is more simplistic, this is a daily test and if you believe that taxable supplies will exceed the registration threshold in the next 30 days alone then you need to register for VAT and start charging VAT to your customers immediately.
Note that in the next 30 days alone is commonly misunderstood – it means that the taxable supplies for the next 30 days in isolation (not looking at historic supplies at all) will exceed the threshold.
Voluntary Registration
A business may also voluntarily register for VAT even though not required to do so, and there are many reasons you may want to consider, although you should speak to a tax professional to determine whether this approach will be beneficial to you.
Useful Links
https://www.gov.uk/register-for-vat
Note that everyone’s circumstances are different and you should consult a qualified tax professional before making any decisions on whether to register for VAT or not. If you need advice in this area please get in touch with us today to book a consultation.