In this blog, we discuss voluntary VAT registration and the advantages and disadvantages associated with this course of action. For example, becoming VAT registered can provide a significant range of benefits to businesses of all sizes; however, there is a good deal of administration involved.
If you are considering voluntary VAT registration, it’s important to understand the various pros and cons and the impact it can have on your business, which we will explain.
What is VAT?
Value Added Tax (VAT) is charged on the majority of goods and services provided by VAT registered businesses in the UK. It also applies to certain goods and services imported into the UK from the EU and non-EU countries.
VAT registered businesses add VAT to the sale price of goods and services they sell to both commercial and non-commercial consumers. Generally, these businesses can also reclaim VAT paid on the goods and services they buy.
Businesses that are not VAT registered cannot reclaim any of the VAT they pay. You have to be registered for VAT to be able to charge or reclaim this tax on anything you buy or sell.
A business is legally required to register for VAT when taxable turnover (overall takings, not profit) for the previous 12 months exceeds the VAT registration threshold of £90,000 (2024/25 tax year), or if it is expected to exceed the VAT threshold in the next 30 days.
What is voluntary registration?
Many small businesses with a turnover of less than the VAT registration threshold decide to become VAT registered on a voluntary basis before they are legally obliged to register for VAT. They choose to do this for various business reasons which we will discuss below.
The advantages of voluntary VAT registration
Whether voluntary or compulsory, there are a number of benefits of being VAT registered:
- VAT can be reclaimed on most goods or services purchased from other businesses
- If your customers are VAT registered businesses they will be able to reclaim the VAT from HMRC. Your prices will still be competitive and you can recover the VAT on your costs
- Small businesses can give the appearance of being bigger and more established. This can be very appealing to customers, lenders, investors, and suppliers because they will assume the company’s turnover is in excess of the VAT registration threshold
- VAT registered businesses are given a VAT number. This can be displayed on invoices, letterheads, websites, and other forms of business stationery. Again, this can be appealing to other firms, many of whom may not be willing to do business with a non-VAT registered entity because it is considered too small
- Voluntary registration can be backdated by up to four years if sufficient evidence can be supplied to HMRC. This means that a business may be able to reclaim VAT paid on equipment that it is still using
- VAT registration will force you to keep more accurate records, which will ultimately be beneficial to the running of your business
The disadvantages of voluntary VAT registration
Whilst VAT registration offers a number of benefits, there are also some drawbacks to be aware of:
- VAT could hamper the appeal of goods and services to customers who are not VAT registered, particularly if the final cost of the sale is deemed unreasonable or overpriced
- Businesses could end up with a large VAT bill from HMRC if they generate more VAT from goods and services sold than the VAT paid on goods and services bought from other businesses
- Extra paperwork and more administration are unavoidable consequences of VAT registration. Businesses need to keep all VAT invoices and receipts, maintain VAT accounting records, and file VAT returns every quarter (i.e., every three months)
How to register for VAT
If you decide you want to register your company for VAT, the application can be completed online at GOV.UK. By doing this, you will register for VAT, and also create a VAT online account (also known as a Government Gateway account). You will need this to submit your VAT Returns to HMRC (see below).
Alternatively, 1st Formations provides an affordable VAT Registration Service at a cost of £39.99 plus VAT. The service includes:
- the preparation and submission of your UK VAT registration application to HMRC
- access to a VAT registration expert to answer your questions
- confirmation of your VAT registration number
- instructions on how to create your own HMRC Government Gateway account to activate your VAT registration online
It can take around 3 weeks to register for VAT online. During that time, you should start keeping records, accounting for VAT, and retaining all relevant invoices and receipts.
You cannot, however, start charging VAT or showing it on any invoices until HMRC sends you a VAT registration number.
However, you can adjust your prices to reflect the amount of VAT that you plan to charge, and then provide VAT invoices to customers after you receive your VAT number.
VAT Returns
If it’s within your budget, it may be beneficial to appoint an accountant to prepare and submit VAT returns and handle VAT affairs on your behalf.
VAT Returns are normally completed online for every 3-month VAT period. These returns must be delivered to HMRC within 1 month and 7 days after the end of the VAT period.
VAT payments must be made to HMRC electronically. The deadline for paying VAT is usually the same as the deadline for filing your VAT Return.
So there you have it!
We’ve covered the concept of voluntary VAT registration and the associated advantages and disadvantages. We have also touched on how to register a business for VAT, and VAT Returns
Whatever direction you choose with regard to VAT registration, we would always advise you to seek professional advice from an accountant.
If you have any questions about what we’ve covered, please ask in the comment section below and we’ll be sure to get straight back to you!
Join The Discussion
Comments (37)
Hi,
Thank you for the informative article.
I have registered my business and getting all the products ready to start selling them online. I am importing the products and will have to pay VAT on these. Is it possible to register for VAT voluntarily even if I have not started trading/selling my products online yet? I am just trying to find out what evidence you will need to voluntarily register for VAT?
Hi,
Thanks for the comment.
Yes – that is absolutely fine!
Regards,
The 1st Formations Team
Hi ,
I started a new business in the UK in May 2021, I have not applied for a VAt at the beginning as I was not expected my sales to hit the VAT threshold, However, now my sales go over the VAT threshold since the beginning of January.
My question is If I need to register now with HMRC so should I pay for my previous sales? keep in mind that I have not charged my customers VAT for my previous sales because I was not registered and even though I have not kept a record of VAT invoices from suppliers.
Thank You
Thanks for your enquiry Mizoo.
First of all, congratulations – it sounds like business is going well!
If you went over the threshold in January, you’ll need to be registered for VAT by 1st March 2022. This is in accordance with the following, from gov.uk:
“You have to register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold.”
Please do let us know if you have any further questions.
Regards,
The 1st Formations Team
Hi,
If I purchase a pack to create an UK LTD company + VAT pack just to get access to sign up for a Tranzf3r W i z e business account under the name of that LTD in order to withdraw funds from Paypal account made from the selling of digital services to people here in latin america ( PAYPAL only allows to withdrawals to US Bank accounts for user like me in LATAM ), in that case, will I have to report and pay VAT to HRMC? Even though I’m not in the UK and my customers are not individuals or companies in the UK? In addition I don’t make 85,000 pounds in year?
Will HMRC look in to that W i z e account for taxation?
Thank you for your kind enquiry Marianne.
In general terms, HMRC will not look into your account for the purposes of VAT. However, if your UK limited company is trading, or if you do not inform HMRC that it is not trading, HMRC will expect you to file a Corporation Tax return once per year. Should you choose not to file a tax return, this may be investigated by HMRC. It should be noted that HMRC have the power to request bank records.
We trust this information is of use to you.
Regards,
The 1st Formations Team
Hi,
I am a sole trader for a large carwash corporate company. I had to register for vat for the services we provide. In the 5 years I have been an operator I have not paid income tax as I do not earn enough money. Should I be able to claim back the vat? and does my corporate company claim back the vat for each year. I am paying around £5000-£6000 a year and am struggling to earn a living. When I became an operator we were not advised on V.A.T and what it meant for us operators and was told we had to sign the contract to become an operator as part of the agreement. All we had was a 2 week induction on how to run the car wash and how to do our daily returns. Any help would be much appreciated
Thank you for your kind inquiry, Richard.
In general terms, there is no link between your income tax and VAT.
We would recommend you log into your VAT online account, to establish when your VAT returns are due, and when VAT payments must be paid to HMRC. The deadline for submitting a VAT return online and paying HMRC are usually 1 calendar month and 7 days after the end of an accounting period. For more information, please click here: https://www.access.service.gov.uk/login/signin/creds
With regards to claiming VAT back, you should keep records to support a claim of this nature, and you must have valid VAT invoices. For more information on how to claim and what you can and cannot claim, click here: https://www.gov.uk/reclaim-vat
We trust this information is of use to you.
Regards,
The 1st Formations Team
Thank you for your kind query, Richard.
There is no link between your income and the claiming back of VAT. You will be able to claim back VAT paid as long as this is in excess of VAT recovered on invoices issued by yourself.
As someone registered for VAT, you must submit quarterly VAT returns to HMRC, and pay what you owe to HMRC in VAT collected. You are then able to separately claim back VAT paid out.
We trust this information is of use to you.
Regards,
The 1st Formations Team
Hi John,
Great article, well done!
We have a consulting company that offer health and safety services and training to mostly construction companies and are voluntary VAT registered as we have not reach the £85000 threshold, and add 20% VAT to out clients invoices. Why is HMRC not giving us a percentage of these VAT we collect on their behalf-is it because our VAT is voluntary?
Thank you for your kind enquiry.
All monies received which are charged to your customers as VAT must be paid to HMRC in the appointed period. With regards to not getting a % of VAT back, this is not how HMRC operates.
If your company is VAT registered, it is able to claim back VAT on goods and services purchases which included VAT. You should retain all expenditure receipts which include VAT on them to enable you to claim this VAT paid back to your company.
We trust this information is of use to you. Should you require any further assistance, please do not hesitate to leave a follow up comment.
Regards,
The 1st Formations Team
thank you for Reply
for me i will sell in other country not uk i will sell in spain
so i must charge VAT ?
– could work without vat number
-which vat i need UK or spain VAT when buy from EU supplier and sell in spain
Thank you for your query, Hafa.
We would recommend in your scenario that you obtain a VAT registration number for the UK. However, we cannot advise on whether you should also obtain an EU VAT number or one from Spain specifically. We would recommend you seek the professional advice from an accountant who specialises in these tax matters within the EU.
I trust this information is of use to you.
Kind regards,
John
hello
i have online store and i use UK LTD to do contract with warhorse in other EU-countries to sell in there
i must charge my clients Vat ? and if my turnover will be more than £85,000 in sale in those countries i must register vat in uk or in those countries
thank you
Thank you for your kind enquiry.
If your turnover for your UK company is expected to be (or is) £85,000, you must register your UK company for VAT with HMRC in the UK.
We would always recommend that a UK trading company charge VAT. Some of your EU clients may be exempt from paying UK VAT; however, if they pay it they should be able to claim it back at a later date. It is important that you protect your company from HMRC believing you are not declaring VAT and therefore avoiding tax – the best way to do this is to charge VAT on all services provided, unless they are listed as exempt by HMRC for VAT purposes.
Should you require more detailed information regarding VAT, we recommend you seek professional advice from an account.
I trust the above information is of use to you.
Kind regards,
John
Hi, thank you for this great article.
I’m a web developer and I’ve created my LTD only to sell web development services. I never buy any goods and my turnover is always lesser than £85,000 but I need to register for VAT because I work with others european companies and it’s mandatory (Irish and France call it intra-communauty VAT) .
Can I register only to get a number to display on my incomes? but to continue to offer my services without any VAT?
Many thanks
Hi Pierre
Thank you for your comment.
Unfortunately, the answer to your question is no. To obtain a VAT number, your company must be VAT registered, and all VAT registered companies require charging VAT.
Kind regards,
John
Hi, great article thanks!
I’m a sole trader offering a consultancy service – my annual forecast is for turnover which is “just” over the VAT threshold. I don’t need the kudos of being registered so it’s a simple case of doing it because I have to. However I am wondering if you know of any models / calculators that I could use to assess the financial impact of registration and the costs of admin and flat rate claims etc vs reducing my turnover (selling less days) to avoid registering and the additional admin etc.
Many Thanks
Hi,
I am setting up a business where I will be buying goods in UK paying VAT on them and then exporting them to other countries. Would I be able to claim VAT back as i will not be charging VAT to the buyers? If so how often can i reclaim VAT?
Regards
Dear Farooq,
We are not vat advisors so cannot confirm what your position will be, however if your business fits the criteria for the circumstances you have listed above then you would be able to claim vat on your purchases whilst not charging vat on your sales.
Best regards,
1st Formations team.
Hi I’m looking to start an online business but I’m a little Confused with all this information. If I buy goods from a supplier which are for example £4500+vat when I sell them on, would I need to add vat again on that amount or would it be sold for the amount already including vat. Thanks
Dear Jatin,
The vat you decide to charge on the sale of your goods is not related to how much you have paid for the goods. You would decide how much you want to charge and add vat on top of that amount.
Best regards,
1st Formations Team.
Great article thank you.
Could I ask if a consultant is working both in the EU and non EU countries, does he had to charge UK VAT to the EU customers and outside EU would be VAT exempt (T0 or T9) please?
Dear Cathryn,
We are not vat experts and unfortunately cannot advise on this matter. I would suggest you contact an accountant to provide this information for you.
Best regards,
1st Formations Team
Hi Rachel,
I need to import €20,000 of equipment to set up my business . If I pay French VAT on this that will add an extra €4000. If I register in the U.K. for VAT will I be exempt from this €4000? And will it be worth it in the short term?
I am an artist and I mostly sell to or work for large art companies who are VAT registered.
Dear Janie,
We are not vat experts and unfortunately cannot advise on this matter. I would suggest you contact an accountant to properly consider the impact of you registering for vat in the UK and if you meet the criteria to be eligible to register.
Best regards,
1st Formations Team
Just wanna say thanks for all the information much appreciated.
You’re most welcome, Mohammed!
Hi, I am setting up a new business and have to purchase goods to the value of £40,000 exc VAT, just to clarify, I will have to pay the seller £48,000 inc VAT, if I chose to go VAT registered straight away can I claim the £8,000 VAT back from HMRC immediately? Just trying to work out whether it’s in my best interests to become VAT registered immediately due to the large start up costs for goods,
Many Thanks in advance!
Sarah
Hi Sarah,
Thanks for your message.
I’m afraid I cannot provide an answer for you – I would advise contacting HMRC directly to discuss your situation.
Best wishes,
Rachel
Hi I run an online store selling baby clothes which are VAT free. I’m not registered but was thinking about it as I buy in clothes from the EU and other countries and pay around 24% VAT.
If I voluntarily became VAT registered could I claim the 24% back and would I have to add VAT to my baby clothes?
Thanks
Michelle
Hi Michelle,
Thanks for your message.
You cannot charge VAT on VAT-exempt goods – most baby attire falls into this category, as you’re aware. Furthermore, businesses that only sell VAT-exempt goods are generally not permitted to reclaim VAT on those goods: https://www.gov.uk/vat-businesses/when-not-to-charge-vat
However, to be absolutely certain that this applies to all of the products you buy and sell, I would strongly advise contacting HMRC for a definitive answer. The number to call is: 0300 200 3700
Best wishes,
Rachel Craig
Hi I am considering making my company VAT registered but would like to know how long it takes to claim your VAT back
Hi Adam,
Refunds are generally made within 10 days of submitting a VAT return to HMRC, but this is not guaranteed. If you do not receive a refund or hear back from HMRC within 30 days, you should contact them.
Best wishes.
I am a LTD company as an agency worker. I have found out that the agency charges VAT for the contracts and that if I become VAT registered they would need to pay VAT to me on top of my hourly rate. Can you please advise if it would be a good idea to voluntarily register or would I open myself up to having to pay VAT somewhere along the line?
Dear Shane
Thank you for your message.
We are not accountants so cannot advise on what would be best for your specific circumstances. What I would note is that if you register for vat then you need to pay and charge vat on everything your company does which falls within the scope of vat.
Kind Regards
Thats true that they would pay VAT to you on top of your hourly rate but you would be paying that VAT to HMRC. However, if you register yourself on flat rate VAT scheme, then you can get some benefit.