Understanding VAT Registration for New Businesses

Starting a new business in the UK is an exciting journey but it also comes with important administrative and financial responsibilities. One of the most critical areas to understand early on is VAT registration. For many new business owners, VAT (Value Added Tax) can seem like a complex, bureaucratic hurdle. However, with the right knowledge and planning, VAT registration becomes a strategic tool that not only ensures compliance with HMRC but can also enhance your credibility and cash flow management.

In this in-depth guide, we’ll cover everything you need to know about VAT registration for new businesses from thresholds and deadlines to the different schemes available, common pitfalls, and practical tips to make the process smoother.

What is VAT?

VAT (Value Added Tax) is a consumption tax applied to most goods and services sold in the UK. It is charged at each stage of the supply chain, but ultimately paid by the end consumer. Businesses act as tax collectors for HMRC: they add VAT to their sales (known as output tax) and reclaim VAT they pay on purchases (known as input tax).

VAT rates in the UK (as of 2025) are:

• Standard rate (20%) – Applies to most goods and services.
• Reduced rate (5%) – Applies to specific items, such as children’s car seats, energy-saving materials, and domestic fuel.
• Zero rate (0%) – Covers certain goods and services, like most food, children’s clothing, and books.

Some goods and services are VAT exempt (e.g., postage stamps, financial services, health services) meaning no VAT is charged, and input tax cannot usually be reclaimed.

Do New Businesses Need to Register for VAT?

Not all new businesses need to register for VAT immediately. The main determining factor is your taxable turnover.

1. Compulsory VAT Registration

You must register if your taxable turnover exceeds the VAT threshold in a rolling 12-month period.

• Current threshold (2025): £90,000 (raised from £85,000 in April 2024).
• If you go over the threshold, you must register within 30 days of the end of the month in which it was exceeded.

You must also register if:

• You expect to exceed the threshold in the next 30 days alone (e.g., from a big contract).
• You acquire goods worth over £90,000 from an EU supplier in a 12-month period.

2. Voluntary VAT Registration

Even if your turnover is below the threshold, you can choose to register voluntarily. This can be advantageous if:

• Your customers are VAT-registered businesses (they can reclaim the VAT you charge).
• You want to reclaim VAT on startup costs (equipment, stock, professional services).
• You want to boost your credibility being VAT-registered can make your business look more established.

However, voluntary registration also means extra admin, so it should be carefully considered.

The VAT Registration Process

Registering for VAT requires attention to detail.

Step 1: Gather Information

Before you apply, ensure you have:

• Business details (name, address, legal structure).
• National Insurance number (if sole trader).
• Business bank account details.
• Records of turnover and expected turnover.
• Details of associated businesses (if any).

Step 2: Apply Online

Most businesses register online through HMRC’s VAT Registration Service. Once registered, you’ll get:

• VAT registration certificate (sent to your HMRC account within ~30 working days).
• VAT number (needed to charge VAT on invoices).
• Guidance on when to file your first VAT Return.

Some businesses (e.g., partnerships or groups) may need to register using a VAT1 form by post.

Step 3: Start Charging VAT

From your effective date of registration, you must:

• Charge VAT on taxable sales.
• Issue VAT-compliant invoices.
• Keep digital VAT records (MTD-compliant software is mandatory).
• File VAT returns quarterly (unless using an annual scheme).