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When do I need to register for VAT?
When you start your business, this is a question in the back of your mind. Depending on your love of finance and numbers and accountancy, sometimes it is very far in the back of your mind (or you are not thinking about it at all). Rightfully so – as you have low or no sales at that point, like every new business.
As your business starts to grow, your sales start to grow, and you know that you need to revisit this question. The only problem is – your business is growing and it is taking up all of your time. Again rightfully so. You are being rewarded for your great idea and your effort, and you want to keep that momentum going.
This is the last time when you want to think about something as annoying as VAT. I agree that the timing is not perfect.
But – if you don’t want any unnecessary hits to your cash flow at this critical stage in your business, when your business hits a certain size, you need to comply with HMRC’s VAT rules.
The main rule is: at the end of any month – when your sales for the last 12 months are more than £85,000, you must register for VAT.
So, as your business and sales are growing you need to be monitoring your sales on a monthly basis. When they add up to more than £85,000 over 12 consecutive months, you have crossed the VAT registration threshold.
In this case you must register for VAT within 30 days of crossing the threshold.
To monitor your monthly sales you can add them up in Excel, or you can have them automatically summarised in an accounting software like Xero (I am biased as I absolutely love Xero).
A rule that applies less frequently is: when you expect your sales to be more than £85,000 over the next 30 days, you must register for VAT.
This reflects much faster growth of a business. In this case you must register for VAT by the end of the 30-day period (i.e., the 30-day period when you expect your sales will be more than £85,000).
I hope this helps clarify this part of VAT for you and if you have any questions please feel free to contact me.
As your business starts to grow, your sales start to grow, and you know that you need to revisit this question. The only problem is – your business is growing and it is taking up all of your time. Again rightfully so. You are being rewarded for your great idea and your effort, and you want to keep that momentum going.
This is the last time when you want to think about something as annoying as VAT. I agree that the timing is not perfect.
But – if you don’t want any unnecessary hits to your cash flow at this critical stage in your business, when your business hits a certain size, you need to comply with HMRC’s VAT rules.
The main rule is: at the end of any month – when your sales for the last 12 months are more than £85,000, you must register for VAT.
So, as your business and sales are growing you need to be monitoring your sales on a monthly basis. When they add up to more than £85,000 over 12 consecutive months, you have crossed the VAT registration threshold.
In this case you must register for VAT within 30 days of crossing the threshold.
To monitor your monthly sales you can add them up in Excel, or you can have them automatically summarised in an accounting software like Xero (I am biased as I absolutely love Xero).
A rule that applies less frequently is: when you expect your sales to be more than £85,000 over the next 30 days, you must register for VAT.
This reflects much faster growth of a business. In this case you must register for VAT by the end of the 30-day period (i.e., the 30-day period when you expect your sales will be more than £85,000).
I hope this helps clarify this part of VAT for you and if you have any questions please feel free to contact me.
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