VAT (Value Added Tax) is a tax added to most goods and services sold by VAT-registered businesses. You charge VAT on your sales, and you can reclaim VAT on your purchases and the difference between the two is what you pay to HMRC.

In the UK, the standard VAT rate is 20%, with reduced rates of 5% and 0% on some goods and services.

You must register for VAT if:
– Your taxable turnover (total sales that aren’t VAT exempt) exceeds the VAT threshold, which is £90,000 (as of 2025) in a rolling 12-month period.
– You expect your turnover to go over the threshold in the next 30 days alone.

You can register voluntary at any time, even if you’re under the threshold.

Even if you’re not required to register, voluntary VAT registration might benefit your business if:
– You sell primarily to other VAT-registered businesses, as they can reclaim the VAT you charge.
– You incur significant VAT on your business expenses.
– You want to appear more established or are preparing for growth.

Voluntary registration may not be the best for you if:
– Your customers are mostly individuals or small businesses not registered for VAT, as they cannot reclaim the VAT you charge.
– Your sales are low, and the admin burden outweighs the benefits.
– You operate in a VAT-exempt industry (e.g. certain healthcare or education services).

VAT registration is not a one-size-fits-all decision. If you’re approaching the threshold or thinking about registering voluntarily, it’s important to understand how it could affect your pricing, customers, and cash flow. The right choice and the right VAT scheme depends on your specific business setup.
At Vital Accounts, we’re here to guide you through the pros and cons based on your unique circumstances. Whether you’re just starting out or scaling up, we’ll help you make a confident, informed decision.