Severn Accounting
Tax & Accounting

New vat threshold – when should you register and when can you

By Ali Jaw ·

VAT registration is one of those topics that can feel confusing, especially when thresholds change and HMRC guidance seems to come thick and fast. Whether you’re running a growing business or considering launching a venture, understanding when you must register for VAT—and when you might choose to—can make a real difference to your finances and administrative burden.

In this post, we’ll walk through the current VAT registration threshold, the rules around mandatory registration, and when it might actually benefit you to register voluntarily.

The Current VAT Threshold

As of April 2024, the VAT registration threshold remains at £85,000 over a rolling 12-month period. This means that if your turnover exceeds £85,000 in any consecutive 12 months, you must register for VAT with HMRC.

It’s important to note that this threshold applies to taxable supplies only. Certain activities—like providing financial services or letting residential property—fall outside the scope of VAT and don’t count towards your £85,000 limit. If you’re unsure whether your income counts, it’s worth checking with HMRC’s guidance or speaking with a qualified accountant.

When You Must Register

You have a legal obligation to register for VAT once your turnover crosses the threshold. Under the VAT Act 1994, failure to register when required can result in penalties from HMRC, so it’s not something to ignore.

You must register within 30 days of the end of the month in which you go over £85,000. However, HMRC may backdate your registration to the actual date you should have registered, which can create complications if you haven’t been charging VAT on your invoices.

If you’re VAT-registered, you’ll need to:

  • Charge VAT on your taxable supplies (currently at 20%, with some reduced rates at 5% and zero rates on certain goods)
  • Reclaim VAT you’ve paid on business expenses
  • Submit VAT returns to HMRC (usually quarterly)
  • Keep detailed VAT records for at least six years

When You Can Register Voluntarily

One option many business owners overlook is voluntary VAT registration. Even if your turnover is below £85,000, you can apply to register voluntarily.

This can be advantageous if:

  • You have significant business expenses. Once registered, you can reclaim VAT on purchases like equipment, stock, and professional services. If you’re spending heavily on these items, the VAT recovery might outweigh the administrative burden.
  • Your customers are VAT-registered businesses. If most of your clients are other businesses, they can reclaim VAT you charge them anyway, so registration doesn’t make you uncompetitive.
  • You supply zero-rated goods or services. If you sell books, food, or provide certain export services, VAT is charged at 0%. Being VAT-registered lets you reclaim input VAT whilst charging none, potentially resulting in VAT refunds.

Voluntary registration does mean extra compliance work—you’ll still need to file returns and maintain records—so weigh this carefully against your circumstances.

Exemptions and Special Cases

Some businesses fall outside the VAT system entirely. If you’re providing exempt supplies (certain insurance, postal services, or education, for example), these don’t count towards your registration threshold, and you cannot reclaim VAT on related costs.

If you’re a sole trader or partnership with mixed income (some taxable, some exempt), only your taxable turnover counts. Similarly, if you’re just starting out and haven’t yet made £85,000 in turnover, you don’t need to register—but do keep careful records so you can demonstrate this to HMRC if required.

The Practical Side

From a day-to-day perspective, VAT registration means additional paperwork. You’ll need to keep invoices and receipts meticulously organised, calculate your VAT liability each quarter, and submit timely returns. Many businesses now use accounting software linked to HMRC’s Making Tax Digital initiative, which has simplified the process.

If you’re approaching the £85,000 threshold, it’s worth having a conversation with your accountant now rather than scrambling when you hit it. They can help you plan the transition, understand how VAT affects your pricing, and ensure you’re compliant from day one.

Getting It Right

VAT threshold rules can feel technical, but they don’t have to derail your business planning. The key is understanding your position early and making informed decisions about whether to register mandatorily or voluntarily.

For tailored advice on your specific situation—whether you’re approaching the threshold, considering voluntary registration, or need clarification on your obligations—Severn Accounting is here to help. We’ve guided countless Worcester-based businesses through their VAT journey, and we’d be delighted to do the same for you.

For tailored advice, contact Severn Accounting—we’re here to help.