VAT Registration Threshold Exceeded

Businesses need to monitor their taxable turnover on a rolling 12-month basis, not just by financial year. When the threshold is exceeded, the business must register within 30 days and begin charging VAT from the date specified by HMRC, which is typically the first day of the second month after the threshold was exceeded. Once registered, VAT returns must generally be submitted quarterly through Making Tax Digital compatible software. The business will charge VAT on its sales and may reclaim VAT on eligible business purchases. Some businesses opt for the VAT flat rate scheme, which simplifies accounting by applying a fixed percentage to turnover rather than tracking individual transactions. Voluntary registration is also possible below the threshold, which some businesses consider if they make significant purchases with VAT.

Common situations include: a growing business realising it has exceeded the threshold, receiving a letter from HMRC noting that turnover appears to have exceeded the threshold, wanting to register voluntarily to reclaim VAT on business costs, needing to understand which VAT scheme is most appropriate, and discovering that registration should have happened earlier than realised.

VAT registration requirements are set out in Schedule 1 of the Value Added Tax Act 1994. Paragraph 1 requires registration when the value of taxable supplies in the preceding 12 months exceeds the threshold. Paragraph 5 requires registration when there are reasonable grounds to expect taxable supplies to exceed the threshold in the next 30 days. The current threshold of GBP 90,000 was set by the Finance Act 2024. Section 67 of the Value Added Tax Act 1994 provides for penalties for failure to notify HMRC of the liability to register. Making Tax Digital for VAT, under the Finance (No. 2) Act 2017, requires VAT-registered businesses to keep digital records and submit returns through compatible software.

People who have exceeded or are approaching the threshold often consider the timing of registration and when VAT must start being charged, whether the flat rate scheme or standard VAT accounting is more suitable, the impact on pricing and whether customers will absorb the additional VAT cost, whether Making Tax Digital compatible software is already in place, and whether there are any exempt supplies that should be excluded from the turnover calculation. Some businesses consider restructuring or adjusting their invoicing to manage the timing of crossing the threshold, though anti-avoidance provisions exist.

Common mistakes include: not monitoring turnover on a rolling 12-month basis and only checking at year end, failing to register within 30 days of exceeding the threshold which can trigger backdated VAT liability and penalties, not understanding which supplies count as taxable turnover, assuming all income counts when some supplies may be exempt or outside the scope of VAT, and not having Making Tax Digital compatible software ready before the first return is due.