VAT Registration Guide for Accountants

Although Rachel Reeves’ Budget on 26th November 2025 did not introduce any changes to the UK VAT registration threshold, it remains important for businesses - and accountants supporting their clients - to stay prepared for any future amendments. With this in mind, we have created this guide to help you stay informed and ready should further updates arise.

Within this guide, we set out the impact this will have for you and your clients and any relevant considerations to maximise your VAT position.

When to register

Businesses must register for VAT when their taxable turnover exceeds the UK VAT registration threshold within any rolling 12-month period, or when it is expected to exceed the threshold in the next 30 days. It should also be noted that there is a nil registration threshold for non-established businesses, and where a business established outside the UK makes taxable supplies subject to UK VAT, registration must be sought.

Once liable to register, businesses must do so within 30 days of the end of the month in which the UK VAT registration threshold was exceeded. The effective date of registration will be the first day of the following month. For example, if the threshold is exceeded in November, the business has until 30 December to notify HMRC, and the effective date of registration will be 1 January.

Notwithstanding the above, businesses making taxable supplies in the UK may register voluntarily when trading below the relevant threshold. The main benefit of doing so is the ability to recover input VAT incurred in the course of making onward taxable supplies.

For these purposes, taxable turnover includes (but is not limited to):

• Zero-rated supplies
• Reduced-rated supplies
• Standard-rated supplies
• Services received from non-UK businesses that are subject to the reverse charge mechanism

The value of exempt supplies and income outside the scope of UK VAT can be excluded.

Obligations for VAT-registered businesses

Once registered, it is important to account for output VAT at the correct rate on taxable supplies.

VAT is due on taxable sales at three potential rates:

• Zero rate (0%)
• Reduced rate (5%)
• Standard rate (20%) - the standard rate is generally applied by exception. Therefore, if a supply is not specifically zero-rated, reduced-rated or exempt, it will be standard-rated by default.

In addition to the above, businesses may receive income that is exempt from VAT (such as qualifying education or the letting of residential property), or outside the scope of UK VAT entirely, such as grant income.

Upon registration, taxpayers should be aware of the VAT liability of supplies made to correctly account for output VAT in accordance with UK VAT law.

VAT-registered businesses are required to submit quarterly VAT returns, detailing the output VAT charged and collected by the business. This is offset against input tax incurred on purchases, with the difference being paid to HMRC. Where input VAT incurred in a VAT quarter exceeds the output VAT charged - for example, where a high proportion of zero-rated supplies are made - the business will be in a repayment position and will receive the difference from HMRC.

All VAT-registered businesses are governed by Making Tax Digital (MTD), which requires VAT returns to be submitted using MTD-compatible software. This aims to automate VAT calculations and simplify the process of collating and submitting VAT returns. Returns are due quarterly, unless a monthly submission is agreed, and must reach HMRC no later than one month and seven days after the end of the VAT return period. For example, where the period covers January to March, the return and any corresponding payment must reach HMRC by 7th May. Penalties may apply where deadlines are not met.

A detailed VAT account must be kept by all VAT-registered businesses, including copies of VAT invoices issued to customers and equivalent documents for purchases. A full VAT invoice should include:

• A sequential number based on one or more series which uniquely identifies the document
• The time of the supply
• The date of issue (if different from the time of supply)
• The name, address and VAT registration number of the supplier
• The name and address of the person to whom the goods or services are supplied
• A description sufficient to identify the goods or services supplied
• For each description, the quantity of goods or the extent of services, the rate of VAT and the amount payable excluding VAT, expressed in any currency
• The gross total amount payable, excluding VAT expressed in any currency
• The rate of any cash discount offered
• The total amount of VAT chargeable, expressed in sterling
• The unit price

Simplified invoices may be issued where the total value of the supply, including VAT, is less than £250.

Input tax

VAT incurred on goods and services that are purchased in the course of making onward taxable supplies can be recovered as input tax. VAT cannot be recovered in relation to exempt and non-business activities.

In order to recover input VAT, supporting evidence (i.e., a full VAT invoice) should be kept as part of the business’s VAT records. The exception to this is in relation to import VAT incurred on goods purchased from outside the UK. The requisite evidence to recover this as input tax will not be a VAT invoice issued by the supplier but will instead be either a Postponed Import VAT statement or a C79 import VAT certificate.

Once the business’s effective date of registration has been confirmed, it is able to recover pre-registration input VAT subject to certain conditions:

• Input VAT incurred on goods in the four years prior to the date of registration can be recovered, provided goods are still on hand at the time of registration.
• VAT incurred on services can be recovered, subject to being received within the six months prior to VAT registration.

In all cases, to recover input VAT, valid VAT invoices must be held.

Where a business makes both taxable and exempt supplies, or indeed has non-business activities, it may be required to perform apportionment calculations on overhead costs to determine the extent to which they relate to taxable supplies made by the business and are therefore recoverable.

Flat Rate Scheme

Businesses that do not wish to account for VAT under normal VAT accounting may wish to consider the Flat Rate Scheme. Under this scheme, VAT is accounted for and paid to HMRC at a flat-rate percentage applied to gross income. In all cases, the flat-rate percentage - determined in accordance with a list of categories relating to the nature of supplies made - is lower than the standard rate of VAT (20%). Output VAT is still charged at 20% to customers on standard-rated supplies, but only the flat-rate percentage is paid to HMRC via the VAT return, with the difference representing a built-in allowance for input VAT. To be eligible for the Flat Rate Scheme, the business must have an expected taxable turnover of £150,000 or less (VAT exclusive) in the next 12 months.

Should the taxpayer be classed as a limited cost business under the Flat Rate Scheme, a flat-rate percentage of 16.5% will apply to gross sales, regardless of the business’s trade sector. As per section 4.4 of VAT Notice 733:

You are a limited cost business if the amount you spend on relevant goods (including VAT) is either:

• Less than 2% of your VAT flat rate turnover
• Greater than 2% of your VAT flat rate turnover but less than £1,000 per year

Flat rate traders are not permitted to recover input tax, unless it relates to high-value capital goods or is pre-registration input VAT, which can be reclaimed subject to the same rules that apply to non-flat rate scheme VAT-registered businesses.

Cash accounting

Under normal VAT accounting, figures reported on VAT returns include both sales and purchase invoices, regardless of whether these have been physically paid. By utilising the Cash Accounting Scheme, VAT on sales is only included once payment has been received from the customer, and input VAT is recovered only after the supplier has been paid.

The use of cash accounting may be beneficial from a cash flow perspective and provides automatic bad debt relief. However, to be eligible, the taxpayer’s expected VAT taxable turnover in the next 12 months must be below £1.35 million.

Exception and exemption from VAT registration

A UK business can be excepted from registration if it is seeking to register belatedly and it can demonstrate that turnover exceeded the UK VAT registration threshold temporarily, with taxable turnover to be below the deregistration threshold in future.

Exemption from registration applies where a business makes wholly or primarily zero-rated supplies. Where granted by HMRC, registration would not need to be sought on the basis that no output VAT would be due on supplies made.

It should be noted that where a business is excepted or exempt from UK VAT registration, input VAT incurred by the business cannot be recovered.

Here at The VAT People, our expert team of consultants are able to assist you or your client at every stage, including:

• Advice on VAT liability of income streams with a view to confirming taxable turnover for the purposes of establishing whether the VAT registration threshold has been exceeded;
• Assistance with the collation and submission of a UK VAT registration application, including liaising with HMRC with respect to any queries it may have;
• Support with the submission of VAT returns; and
• Ad hoc advice regarding input VAT recovery, special schemes and VAT records.

Should you or your client require any support, please do not hesitate to contact us.