VAT (Value Added Tax) is a consumption tax charged at 20% on most goods and services sold in the UK. If your business turnover exceeds the VAT threshold (£90,000 for 2024/25), registration is mandatory.
Do You Need to Register?
You must register for VAT if your taxable turnover in any rolling 12-month period exceeds £90,000. You can also register voluntarily below this threshold — which makes sense if you have significant VAT-able costs or if your clients are VAT-registered businesses (they can reclaim the VAT you charge them).
VAT Rates
- •Standard rate (20%) — most goods and services
- •Reduced rate (5%) — domestic fuel, some energy-saving products, children's car seats
- •Zero rate (0%) — food, children's clothing, most books, public transport
- •Exempt — financial services, insurance, education, health services (no VAT charged and no input VAT recoverable)
VAT Schemes
Small businesses can often benefit from simplified VAT schemes:
Flat Rate Scheme (FRS): You charge 20% VAT to customers but pay a fixed percentage of your gross turnover to HMRC (the percentage depends on your sector). Simple to administer but can be less beneficial if your input VAT is high.
Annual Accounting Scheme: One VAT return per year with advance payments. Reduces admin burden.
Cash Accounting Scheme: You account for VAT on the basis of cash received rather than invoice dates — helps cashflow if you have slow-paying customers.
MTD for VAT
Making Tax Digital (MTD) now applies to all VAT-registered businesses. You must keep digital records and submit VAT returns via MTD-compatible software (Xero, QuickBooks, Sage, etc.).
Common Mistakes
- •Not registering on time (penalties apply from the date you should have registered)
- •Claiming VAT on entertainment and some motor costs (restricted)
- •Charging VAT on exempt supplies
- •Missing the quarterly filing deadline (surcharge regime has been replaced by a new points-based system)
We Handle Your VAT
We prepare and file your quarterly or annual VAT returns, advise on the best scheme for your situation, and represent you in any HMRC VAT enquiries.