When do I need to register for VAT in the UK?

You must register for VAT within 30 days if your taxable turnover exceeds £90,000 in any rolling 12-month period (threshold from April 2024). Taxable turnover includes all VAT-able sales before VAT is added. You can also register voluntarily below this threshold, which makes sense if you have significant VAT-able expenses to reclaim, deal mainly with VAT-registered businesses who can reclaim your VAT, or want to appear more established. Once registered, you must submit VAT returns quarterly (or monthly/annually under certain schemes) and pay VAT to HMRC one month and seven days after each quarter ends. You can choose between Standard VAT (charge 20% on sales, reclaim VAT on purchases) or Flat Rate Scheme (pay a fixed percentage based on your business category, typically 10-16.5%, but cannot reclaim most VAT). Limited cost traders (businesses with VAT-inclusive goods expenditure below 2% of turnover or under £1,000 yearly) must use a 16.5% flat rate, making Flat Rate less attractive for service-based businesses. Deregistration is required if turnover falls below £88,000.

What is the current UK VAT registration threshold?

The VAT registration threshold is £90,000 from April 2024. If your taxable turnover exceeds this in any 12-month rolling period, you must register for VAT within 30 days. You can also register voluntarily below this threshold. For the latest official thresholds, see the GOV.UK guidance.

What's the difference between Standard VAT and Flat Rate Scheme?

With Standard VAT, you charge 20% on sales and reclaim VAT on purchases. With Flat Rate Scheme, you pay a fixed percentage of gross turnover based on your business category, but cannot reclaim VAT on most purchases. Flat Rate is simpler but not always cheaper.

What is a limited cost trader?

A limited cost trader is a business whose VAT-inclusive expenditure on goods is less than 2% of turnover or under £1,000 per year. Limited cost traders must use a flat rate of 16.5%, making the scheme less attractive for service-based agencies with few goods purchases.

Should I register for VAT voluntarily?

Voluntary registration can make sense if you have significant VAT-able expenses to reclaim, deal mainly with VAT-registered businesses (who can reclaim your VAT), or want to appear more established. However, it adds admin burden and can make you more expensive to non-VAT registered clients.

When do I need to submit VAT returns?

Most businesses submit VAT returns quarterly, with payment due one month and 7 days after the quarter ends. You can apply for monthly returns if you regularly reclaim more VAT than you collect, or annual returns if you qualify for the Annual Accounting Scheme.

What expenses can I reclaim VAT on?

You can reclaim VAT on business expenses including software subscriptions, equipment, professional fees, subcontractor costs, and some travel. You cannot reclaim VAT on entertaining, cars (except for some business uses), or goods/services for personal use.

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Understanding VAT Registration and Schemes

1Registration Threshold and Timing: The £90,000 VAT registration threshold (from April 2024) is based on taxable turnover in any rolling 12-month period, not calendar or financial year. This means you must continuously monitor your last 12 months of sales. If you exceed £90,000, you must notify HMRC within 30 days and register for VAT. Your effective registration date will be the end of the month after you crossed the threshold. Missing this deadline triggers penalties. Conversely, you can deregister if turnover falls below £88,000, recovering your VAT registration threshold. Monitor your turnover monthly using your accounting software's rolling 12-month reports to avoid surprises.
2Standard VAT vs Flat Rate Scheme: Standard VAT means you charge 20% VAT on your sales (output VAT), reclaim VAT on your business purchases (input VAT), and pay the difference to HMRC quarterly. This works well if you have significant VAT-able expenses like software subscriptions, equipment, subcontractors, or office costs. Flat Rate Scheme lets you pay a fixed percentage (typically 10-14.5% for agencies, plus 1% discount in year one) of your gross turnover including VAT, but you cannot reclaim VAT on purchases except capital assets over £2,000. Flat Rate is simpler administratively but only saves money if your VAT-able expenses are low. Calculate both scenarios with your actual figures before choosing.
3Limited Cost Trader Rules: HMRC introduced limited cost trader rules to prevent service businesses with minimal goods purchases from benefiting too much from Flat Rate Scheme. You're a limited cost trader if your VAT-inclusive expenditure on goods is either less than 2% of turnover OR under £1,000 per year (whichever is higher). Limited cost traders must pay 16.5% flat rate regardless of business category, making Flat Rate significantly less attractive. Software subscriptions, services, and subcontractors don't count as goods. Most agencies are limited cost traders because they primarily buy services, not physical goods. This makes Standard VAT usually more cost-effective for agencies.
4Cash Flow and Admin Impact: VAT significantly affects cash flow because you must pay HMRC one month and seven days after each quarter ends, regardless of whether clients have paid you. If you invoice £10,000 including £2,000 VAT with 30-day payment terms at quarter-end, you must pay HMRC the £2,000 before the client pays you,creating a cash flow gap. Mitigate this by: setting aside 20% of all income immediately for VAT, negotiating tighter payment terms, using the Cash Accounting Scheme if eligible (turnover under £1.35m), or maintaining a separate VAT bank account. Administrative burden increases with VAT: quarterly returns, digital records under Making Tax Digital, potential HMRC inspections. Budget 2-4 hours quarterly for VAT compliance or engage an accountant.

✓Verified by Alto's chartered accountants. Rates current for 2026/27 tax year.

Understanding VAT for Agencies

Key things every agency founder should know about VAT

When to Register

Turnover exceeds £90k in any rolling 12 months
You expect to exceed £90k in the next 30 days
You can register voluntarily at any turnover level

Choosing a Scheme

Standard: Best if you have significant expenses to reclaim
Flat Rate: Simpler admin, but may cost more
Our calculator shows which saves you more money

Frequently Asked Questions

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Threshold Projection

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Understanding VAT for Agencies

When to Register

Choosing a Scheme

Frequently Asked Questions

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TL;DR

Understanding VAT for Agencies

When to Register

Choosing a Scheme

Frequently Asked Questions

What is the current UK VAT registration threshold?

What's the difference between Standard VAT and Flat Rate Scheme?

What is a limited cost trader?

Should I register for VAT voluntarily?

When do I need to submit VAT returns?

What expenses can I reclaim VAT on?

Related Tools

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