Value Added Tax (VAT) is charged in the United Kingdom (UK) on a wide variety of products and services and must be paid to HMRC by VAT-registered businesses. Not all businesses in the UK need to register for VAT, however; this depends on certain factors, including the turnover of the business.
As a VAT-registered business, you are effectively acting as a tax collector on behalf of HMRC, paying the amounts collected directly to them, normally on a quarterly basis. Payments can also be made on a monthly or annual basis.
Most businesses operating in the UK are required to charge and pay VAT. However, some are exempt due to the types of products and services they provide and their level of turnover.
As of 2025, the current standard rate of VAT in the UK is 20% (this rose from 17.5% on 4th January 2011). The reduced rate of VAT is set at 5%, and some goods and services have a zero rate.
In this article, we will explain which businesses are required to register for VAT, which businesses are exempt from VAT, and how to register for VAT in the UK in 2025.
Do I need to register for VAT in the UK?
Your business will need to register for VAT on a compulsory basis if it exceeds that VAT turnover threshold, or it may be exempt altogether. Given that the tax law in the UK is constantly evolving, it is essential to understand which category your business falls into and keep this under review to ensure that you continue to meet your tax obligations.
When does compulsory VAT registration apply?
Following the Spring 2024 budget, the VAT threshold rose from £85,000 to £90,000 on 1st April 2024. This means that you must register with HMRC for VAT if your turnover exceeded £90,000 (this is referred to as the “VAT threshold”) in the last 12 months or if you expect to reach this point in the next 30 days. When determining whether you need to register, you will need to calculate your level of turnover at the end of each month for the previous 12-month period.
You must also register for VAT with HMRC, regardless of your business’s taxable turnover, if:
- You are based outside the UK, and
- Your business is based outside the UK, and
- You supply any goods or services to the UK (or expect to in the next 30 days)
The turnover threshold at which a business can de-register for VAT also increased from £83,000 to £88,000 on 1st April 2024. For businesses in Northern Ireland, the registration and deregistration VAT thresholds both rose from £85,000 to £90,000.
If your business’s turnover has exceeded the VAT threshold
It is important to ensure that you register for VAT promptly when required to do so. HMRC states that you must register within 30 days of the end of the month when your turnover exceeded the threshold. For example, if on 15th July 2025, your total taxable turnover for the last 12 months was £100,000, and this is the first time you have exceeded the VAT threshold, you must register by 30th August 2025. This then means that your effective date of registration is 1st September 2025.
If your business’s turnover will exceed the VAT threshold in the next 30 days
If you need to register for VAT because your total taxable turnover is going to exceed the £90,000 threshold in the next 30 days, you must do so by the end of that 30-day period. In this case, your effective date of registration is the date you realised you were going to exceed the threshold, not the actual date that your turnover exceeded the VAT threshold. For example, if on 1st May 2025, you agree to a £100,000 contract to provide goods or services for which you know you will be paid at the end of May, you will need to submit your VAT registration application by 30th May 2025. This means that your effective date of registration will be 1st May 2025.
If your business’s turnover will temporarily exceed the VAT thresholdIf you expect your turnover to rise above the VAT threshold but then drop immediately afterwards (i.e. it is temporary), then you may be able to request a VAT registration exemption by completing and submitting a VAT1 registration form to HMRC. To support your application, you will be asked to provide proof that your taxable turnover will not exceed the deregistration threshold of £88,000 in the next 12 months.
When does voluntary VAT registration apply?
If your business has a turnover below the VAT threshold, you can choose to register for VAT on a voluntary basis. Your business may choose to register for VAT because of the advantages offered, including the ability to reclaim VAT on expenses paid. This can be especially advantageous for businesses that only supply zero-rated goods and services, as they can reclaim VAT without charging VAT to customers.
Does all turnover count towards the VAT threshold?
No, not all turnover counts towards the VAT threshold. To calculate if your business meets the VAT threshold, you will need to work out the total value of all the taxable supplies made in the UK (this includes the Isle of Man), including:
- Standard-rated goods and services (20%)
- Reduced-rated goods and services (5%)
- Zero-rated goods and services (0%)
- Reverse charge services received from overseas.
- Goods hired or loaned to customers
- Business goods used for personal reasons
- Goods bartered, part-exchanged or gifted
- Building work to a value over £100,000 that your business undertook for itself
You do not need to include supplies that are deemed to be exempt and outside the scope of VAT. VAT-exempt supplies include land, insurance, postal services, education, training, finance, health and welfare, sport, gaming, culture, charitable fundraising, and antiques.
In addition, certain goods and services are considered “out of scope” for VAT, including:
- goods or services you purchase and use outside of the UK
- statutory fees, e.g. city congestion charges
- goods sold as part of a hobby, and
- donations to a charity (if given without receiving anything in return)
Do I need to pay VAT if my business is based outside the UK?
The tax rules state that a business must register for VAT if they are based outside the UK and supply goods and services to the UK (or will do so in the next 30 days).
How do I register for VAT?
Most businesses operating in the UK can simply register for VAT on the HMRC website. At the start of this process, you may need to create a Government Gateway account, which you can later use to submit your VAT returns to HMRC and pay any VAT owed. You can choose to register your business for VAT yourself or ask a professional agent to do this on your behalf.
It is also possible to register for UK VAT by post by completing and submitting form VAT1 to HMRC. You will need to register by post if you want to apply for a “registration exception”, join the Agricultural Flat Rate Scheme or register parts of a corporate body under different VAT numbers.
When completing the VAT registration form, you will be asked to provide details relating to:
- The person making the VAT declaration and their signature
- Where your business is based
- The type of business (i.e. sole trader, general partnership, limited partnership, body corporate, limited liability partnerships, charity, trust, registered society, or unincorporated society)
- Business contact details
- Whether you are applying for voluntary or compulsory VAT registration
- Whether you have exceeded the VAT threshold in the last 12 months or expect to in the next 30 days
- Turnover, and
- Activities carried out by the business.
A key part of the VAT registration process is selecting the appropriate VAT accounting scheme for your business. There are four main types of VAT accounting scheme:
- Standard VAT accounting: this scheme is used by the majority of businesses. Using this method, you charge and collect VAT for each sale you make, prepare and submit a VAT return each quarter (or year), and pay the amounts collected to HMRC within the required period.
- Annual VAT accounting: a VAT return is prepared and submitted to HMRC every 12 months, but VAT payments are made quarterly based on the last return.
- Flat-rate VAT scheme: for smaller businesses, it may be possible to register for the flat-rate VAT scheme. Using this method, you simply pay a percentage of your turnover to HMRC as VAT. It is important to note, however, that if you register for flat-rate VAT, you will not be able to reclaim the VAT on your purchases (with the exception of some capital assets with a value in excess of £2,000). The exact flat rate you pay depends on the type of business. If you wish to join the flat-rate VAT scheme, you can do so online or complete for VAT600 FRS. You can join the HMRC VAT flat rate scheme if you are VAT registered and you expect your turnover to be £150,000 or less (excluding VAT) in the next 12 months.
- Cash VAT accounting: Using this method, HMRC makes the assumption that you collect or pay VAT when money is exchanged rather than when you raise an invoice for your goods or services. The benefit of this method is that VAT is only paid when you receive payment of your invoices. To use cash accounting, you must be registered for VAT and have an estimated VAT taxable turnover of £1.35 million or less in the next 12 months. HMRC advises that you do not need to tell them if you wish to use cash accounting.
What happens once I have registered for VAT?
Once you have completed the VAT registration process with HMRC, you will receive:
- Your VAT number
- Details about when and how to submit your first VAT return and payment
- Your VAT registration date (“effective date of registration”)
These details will be available in your online VAT account or sent to you in writing if you post your application. The effective date of registration is the date when your business can start charging VAT and reclaiming VAT paid on your business expenses. The amount of VAT that can be reclaimed in each period is deducted from the amount of VAT you owe, hence reducing the final amount you need to pay HMRC.
Once you are registered for VAT, you must add VAT where applicable to your prices, include VAT on all invoices sent to your customers, prepare and submit a VAT return to HRMC each quarter or year, pay the amount owed to HMRC, and keep digital VAT records. Digital VAT records include records of your sales and purchases, a summary of your VAT, and your VAT invoices. These must be stored for a minimum of 6 years and be accurate, complete, and readable.
If your circumstances change in the future and your business is no longer eligible to be VAT registered, you will need to apply online to HMRC to cancel your VAT registration. This may be required; for example, if you cease trading, you stop selling VAT-taxable goods and services, or your business joins a VAT group. The rules state that you must cancel your VAT registration within 30 days from the date when you cease to be eligible, or you risk being charged a penalty.
What VAT should I charge in the UK in 2025?
Once you are registered for VAT in the UK with HMRC, you will need to charge your customers VAT on:
- The goods and services you sell
- Hiring or loaning goods to someone
- The sale of business assets
- Commission
- Business goods used for personal reasons, and
- ‘Non-sales’ like bartering, part-exchange and gifts
The rate of VAT that you must charge your customers will fit into one of three categories:
| VAT rate | Description |
|---|---|
|
Standard rate of 20% |
The standard rate applies to most goods and services sold in the UK |
|
Reduced rate of 5% |
The reduced rate is for certain goods and services such as hearing aids for the elderly, child car seats and home energy |
|
Zero rate (0%) |
Zero rate VAT is applicable to certain goods and services such as children’s clothes, food, and building services or equipment for blind or partially sighted people. |
Some goods and services are completely exempt from paying VAT, including postage stamps, care or medical treatment, education and vocational training, and property transactions.
Changes to VAT for private schooling in 2025
HMRC has recently made a change to how VAT applies to private school education. Prior to 2025, private/independent schools did not charge VAT on fees. From 1st January 2025, the standard 20% VAT rate will apply to private school fees. In addition, any private school fees paid from 29th July 2024 covering the school term starting in January 2025 and onwards are subject to the payment of VAT at the standard rate.
Final words
Registering for VAT can confer considerable advantages to businesses operating in the UK, including the ability to reclaim VAT on expenses paid. Indeed, you can even claim a refund of VAT on items purchased up to four years ago if you are still using them. Thankfully, the HMRC has made the process of registering for VAT, submitting VAT returns, and paying VAT quarterly or annually extremely straightforward and efficient. Your accountant can handle all aspects of your VAT returns on your behalf, including working out the final balance you need to pay. VAT must then be paid no more than one month and seven days after the end of the VAT period.
At Uniwide Formations, we have a team of experts who are experienced in forming UK companies. Our specialists can take care of all the paperwork and registration of your limited company. We can also help you with VAT registration for your company.