When Should I Register for VAT?

If you’re a freelancer, a contractor or a sole trader, you might be wondering when it’s the right time to register for VAT.

You probably already know that the annual turnover threshold for registering for VAT is £85,000. But do you know the rules beyond this? For example, do you need to register after you’ve hit the threshold, or before? And once you’ve registered for VAT, what happens next?

When Should You Register For VAT?

The Government guidelines are very clear here. Essentially, it’s compulsory to register for VAT when:

  • You expect your VAT taxable turnover to exceed £85,000 over the next 30-day period.
  • Your business had a VAT taxable turnover of more than £85,000 over the last 12 months.

Let’s explore each of those instances in a little more detail.

You need to register your small business for VAT when turnover hits £85,000

What Happens If You Expect to Exceed the VAT Threshold in the Next 30-Day Period?

Obviously, you’re keeping a close watch on your finances and your turnover. The VAT taxable turnover is the total of all the goods and services you’ve sold that are not VAT exempt. Head here for a more detailed guide to calculating your VAT taxable turnover

So let’s say you make a significant sale, or you win a big new client. Looking at your books, you realise that this is going to take you over that £85,000 threshold. Clearly, you need to register for VAT. But when?

According to UK law, you must register for VAT by the end of this 30-day period. So if you realise that you’re going to exceed the threshold on 1 July, you’ll have until the 30 July to get yourself registered for VAT.

The day on which you realised you’re going to exceed the threshold will henceforth be known as your “effective date of registration”. So even if you leave it to the very last minute to register for VAT, once you are registered, you’ll have to use the first date when making all of your VAT calculations.

What Happens If You Exceeded the VAT Threshold in the Past 12 Months?

It might surprise you to learn that the financial year doesn’t necessarily apply here. According to UK law, you need to register for VAT if your total VAT taxable turnover for the past 12 months exceeds £85,000 by the end of any month.

Once again, you have 30 days to get yourself registered. In this case, you must register within 30 days of the end of whichever month first saw you go over the threshold. And this time, your effective date of registration is the first day of the second month after you exceed the threshold.

Confused? Let’s look at an example. Say that, between 15 August 2018 and 15 August 2019 your VAT taxable turnover was £90,000. This is the first time you’ve ever gone over the VAT threshold, so it’s time to get registered. In this case, you’ll have until 30 September 2019 to get registered, and your effective date of registration will be 1 October 2019.

Other Times When You’ll Have to Register for VAT

In each of these cases, UK law doesn’t seem to offer any clear advice concerning time frames. So take it as a given that, if you meet any of the following criteria, you should register for VAT as soon as possible:

  • If you sell goods or services that are exempt from VAT, but you buy goods or services for more than £85,000 from EU VAT-registered suppliers for use in your business.
  • You may have to register for VAT yourself if you take over a VAT-registered business.
  • If neither you nor your business is based in the UK, no VAT threshold applies. So as soon as you supply any goods or services to the UK, or if you expect to do so in the next 30 days, you must register for VAT immediately.

What Happens If I Don’t Register for VAT?

If you miss your registration deadline, you’ll have to pay what you owe from whenever you should have registered. You might also have to pay a penalty, depending on how much you owe and how late you were to register.

What If I’ll Only Temporarily Exceed the Threshold?

So you’ve had an extremely good month. It’s taken you over that £85,000 threshold. But it was an exception. You know that, from next month onwards, you’ll fall far below the threshold once more. Do you still have to register for VAT?

Technically, yes. But if your taxable turnover only goes over the threshold temporarily, you can write to HMRC to request an exception. Be prepared to provide evidence showing why you believe your turnover will not exceed the threshold in the next 12 months. HMRC will consider your case. If they don’t think you deserve an exception, they’ll register you for VAT. But if they do, they’ll write to you to let you know. Head here for more information on applying for an exception.

What Else Should I Consider?

Because the threshold’s so high, only the most successful of freelancers, contractors and sole traders will ever really need to register for VAT. Some choose to register voluntarily. But unless your annual turnover exceeds the threshold, registration is not compulsory.

But one thing that all freelancers and contractors should consider, regardless of size, is insurance.

Whether it’s a cash settlement for a personal injury, compensation for a customer who’s had their property damaged, or even legal protection in the face of a dispute, insurance offers an essential lifeline for freelancers and contractors in all lines of work.

We offer insurance for contractors and freelancers from as little as 35p a day. There are no hidden fees, you can cancel at any time, and you can get an online quote and full cover in a matter of minutes. Head here for more information.

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