Value Added Tax (VAT) is an important consideration for any business in the UK, and if you’re running a limited company, you might be wondering whether VAT registration is necessary for you. 

Well the answer depends on a few key factors relating to your business’s circumstances, such as your turnover and the nature of your clients.

At Crunch we’ve become pretty savvy on all things VAT, saving our clients more than a few quid over the years on the value they add! So we’re well qualified to answer the common question - does a limited company have to be VAT registered? 

Whether you’re just starting out or ready to expand, understanding your VAT obligations can save you time, money, and potential headaches down the line. Let’s find out how.

1. What is VAT registration?

Value Added Tax (VAT) is a consumption tax levied on most goods and services in the UK. When a business registers for VAT, it becomes responsible for charging VAT on its sales and remitting this tax to HM Revenue and Customs (HMRC). This process is known as VAT registration.

{{ltd-guide}}

Key aspects of VAT registration:

• Charging VAT: Once registered, your limited company must add VAT to the sale price of taxable goods and services. The standard VAT rate is currently 20%, but some items may qualify for reduced rates or be zero-rated.
• Reclaiming VAT: VAT-registered businesses can reclaim the VAT paid on purchases and expenses related to their taxable supplies, effectively reducing their overall tax burden.
• Record-keeping: Accurate records of all sales and purchases must be maintained to ensure compliance and facilitate the preparation of VAT returns.

2. Does a limited company have to be VAT registered?

In the UK, VAT registration for limited companies is determined by the company's taxable turnover. As of 1 April 2024, if your company's taxable turnover exceeds £90,000 in any consecutive 12-month period or you expect it to exceed the £90,000 in the next 30 days, VAT registration becomes mandatory.

Key points to consider:

• Mandatory registration threshold: Monitor your rolling 12-month turnover to ensure compliance with VAT registration requirements. If you exceed the £90,000 threshold, you must register for VAT within 30 days of the end of the month in which you surpassed the limit.
  
• Voluntary registration: If your turnover is below the threshold, you can choose to register voluntarily. This decision may be beneficial if you regularly incur VAT on purchases or if your clients are predominantly VAT-registered businesses.
• Exceptions to registration: In certain situations, such as a one-off increase in turnover, you may apply for an exception from registration. To qualify, you must demonstrate to HMRC that your future taxable turnover will fall below the deregistration threshold of £88,000.

We recommend consulting with us for expert VAT advice based on your business’s specific circumstances.

When should you consider voluntary VAT registration?

Even if your limited company’s turnover falls below the current VAT registration threshold of £90,000, voluntary registration can sometimes be a smart move. While not mandatory, it can provide financial and strategic advantages depending on your business model and client base.

Benefits of voluntary VAT registration

1. Claiming back VAT on purchases

If your business incurs significant VAT on expenses, being VAT-registered on the Standard scheme allows you to reclaim this cost. For instance, if you invest heavily in equipment, training, or supplies, this could result in noticeable savings.

2. Enhanced professional image

Being VAT-registered can make your business appear larger or more established, which may appeal to corporate clients who are also VAT-registered.

3. Future-proofing your business

If you’re on track to exceed the VAT threshold soon, registering voluntarily now avoids the rush later and ensures you’re compliant from the outset.

Potential downsides of voluntary registration

1. Administrative burden

Registering for VAT adds an additional filing. This can mean more accounting work and potentially higher accountancy fees.

2. Impact on pricing

If your customers are not VAT-registered, adding VAT to your prices could make your services less competitive. This is particularly relevant if your clients are individuals or small businesses.

3. Cash flow considerations

VAT registration can affect your cash flow, especially if you must pay VAT on your sales before reclaiming VAT on your expenses. If you’re VAT registered you will start paying month 2 or 4, instead of when you pay Corporation tax - 21 months after set up.

When does it make sense?

• Your clients are predominantly VAT-registered businesses and can reclaim the VAT you charge.
• Your business incurs high VAT on purchases that you want to reclaim.
• You’re aiming to grow and want to build a professional reputation in your industry.

Voluntary VAT registration is not a one-size-fits-all solution. Carefully weigh the pros and cons based on your business’s unique needs and financial position.

{{cta-limited-company}}

How to register for VAT

Registering your limited company for VAT is a straightforward process, and most businesses complete it online. 

Here’s how it works:

1. Check your eligibility

• Ensure your taxable turnover exceeds the current threshold (£90,000) or that you’ve decided to register voluntarily.

2. Gather the necessary information

You’ll need:

• Your company’s Unique Taxpayer Reference (UTR).
• Details about your business activities.
• Bank account information.
• Estimated turnover and the date you exceeded the threshold (if applicable).

3. Register online

• Visit the HMRC VAT registration page and follow the step-by-step instructions.
• During registration, you can choose a VAT scheme, such as the Standard VAT Scheme or the Flat Rate Scheme, depending on your business needs.

4. Receive your VAT registration number

• HMRC will process your application and issue a VAT registration number, usually within a few weeks.

5. Start charging VAT

• From your effective VAT registration date, you must add VAT to your taxable sales, issue VAT-compliant invoices, and keep detailed records.

6. Submit VAT returns

• You’ll be required to submit VAT returns, typically every quarter, and pay any VAT owed to HMRC.

Tip: Registering for VAT also means complying with Making Tax Digital (MTD) rules, so ensure you’re using MTD-compatible accounting software. 

If you're unsure about any step, ask an accountant or tax advisor who can help ensure you’re fully compliant and set up correctly.
‍

Your VAT registration questions answered

So, in answer to the original question, deciding whether to register your limited company for VAT depends on your turnover, clients, and business goals. 

Bear-in-mind, it’s mandatory after you reach a certain threshold. So if you expect to reach £90,000 plus then it would be wise to familiarise yourself with VAT prior to reaching this figure.

If you’re unsure, professional advice can clarify your options and ensure compliance. Take the time to weigh the benefits and obligations—VAT registration could be a strategic step for your business.

‍