Guide to VAT for small business

When to register for VAT

Businesses must register for VAT when their turnover is expected to exceed £85,000 in the next 30 days or has exceeded this threshold in the previous 12 months. Once you have registered HMRC will:

  • Issue a VAT certificate containing your VAT registration number

  • Tell you when you need to submit your first VAT return

  • Tell you your effective date, this is the 1st day of the second moth after your turnover exceeds £85,000

You can't charge VAT to your customers until you receive your VAT registration number, however if you receive this after your effective date, VAT will still have to be paid on goods or services supplied on or after this date.


We would recommend that provision is made for the potential for the VAT registration number to be received after the effective date, by discussing this with your customers and raising a replacement invoices once you receive the registration number.


From the effective date you will need to:

  • Charge VAT on all VATable supplies

  • Maintain accounting records, including a VAT account in accordance with the requirements of the Making Tax Digial (MTD) agenda

  • File VAT returns

  • Pay the balance of the VAT collected to HMRC

Late registration


If you are late registering for VAT, you will need to pay the VAT which should have been collected on supplies after the effective date and potenially a fine.

Exemption and deregistration

If you believe that exceeding the VAT registration threshold is temporary, you can request an exemption from registration, simiarly if the value of sales falls below the deregistration threshold of £83,000 you can apply to deregister from VAT.

Input VAT or VAT incurred on expenses

The VAT paid to HMRC is the amout collected from goods or services provided to customers less VAT paid to suppliers. There are a few options open to businesses in the way input VAT is calculated:

  • Actual value taken from suppliers invoices or receipts

  • Adopting the flat rate scheme - this uses a percentage othe output tax calculated from sales or turnover based on HMRC approved rates.

Cash accounting scheme

The general VAT scheme is based on invoices raised and received within the VAT accounting period, however businesses with turnover less than £1.3m  may elect to use the cash accounting scheme. VAT is not deemed collected or paid until the cash inflow or outflow has actually occured.

There are many other schemes or incentatives to help businesses manage their cashflows or reduced the administrative burdon of accounting for VAT including:

  • Annual accounting scheme

  • Retail scheme

  • VAT margin schemes - llimited to certain businesses

If you would like any further information on the best VAT scheme for your business or have any other queries regarding VAT, please feel free to get in touch.