If you’re running a limited company on your own, you might be wondering whether you need to register for VAT.
Or maybe you’ve heard other small business owners say it saved them money, but you’re not sure if it’s right for you.
In this post, we’ll explain when VAT registration is required, when it’s optional, and how to decide what’s best for your business.
What Is VAT?
VAT (Value Added Tax) is a tax added to most goods and services sold in the UK. The standard rate is 20%.
When you’re VAT registered:
- You charge VAT on your sales (called “output VAT”)
- You can reclaim VAT on business purchases (called “input VAT”)
This can affect your pricing, cash flow, and how your business is perceived.
When Do You Have to Register for VAT?
You must register if your business turnover goes over the VAT threshold, which is £90,000 in any rolling 12-month period (as of 2025).
If you’re close to this limit, it’s worth tracking your turnover monthly to avoid missing the deadline. Failing to register on time can lead to penalties.
At Legacy Figures Accountancy, we focus on your finances so you can focus on your business.
Want to learn more? Let’s have a chat.
When Can You Choose to Register Voluntarily?
Even if your turnover is under £90,000, you can register voluntarily. This can be a smart move if:
- You mainly sell to other VAT-registered businesses (who can reclaim VAT)
- You buy a lot of goods or services with VAT that you want to reclaim
- You want to look more established and professional
But voluntary registration isn’t for everyone.
Let’s weigh up the pros and cons.
Pros and Cons of Early VAT Registration
| Pros | Cons |
|---|---|
| You can reclaim VAT on business expenses | You’ll need to charge VAT, which may increase your prices |
| Looks more credible to some clients | Extra paperwork and quarterly returns |
| May save money if you buy a lot of VAT-able items | More rules to follow (e.g. digital record-keeping) |
What About the Flat Rate Scheme?
If your VAT-taxable turnover is under £150,000 per year, you might qualify for the Flat Rate Scheme (FRS).
This is designed to simplify VAT for small businesses.
- You charge 20% VAT on sales as usual
- But instead of claiming back VAT on purchases, you pay HMRC a fixed lower rate (based on your industry)
- You keep the difference as profit
For example, IT contractors may pay a flat rate of 14.5%
This scheme reduces admin, but you can’t reclaim VAT on most expenses (except capital assets over £2,000).
Should I Register for VAT In Advance?
Early VAT registration can work in your favour if:
- Your clients are VAT registered and don’t mind paying VAT
- You spend a lot on VAT-inclusive expenses
- You want to appear more professional or well-established
But it may not be worth it if:
- You won’t reach the turnover thresholds anytime soon
- You sell to the public (who can’t reclaim VAT)
- Your prices are already tight and you’d lose customers by adding VAT
- You want to keep your admin as simple as possible
How We Help
At Legacy Figures Accountancy, we guide solo business owners through the VAT decision-making process.
We can:
- Monitor your turnover and tell you when registration is required
- Advise if voluntary VAT registration or the Flat Rate Scheme could save you money
- Register you with HMRC and help set up your VAT system
- File your VAT returns on time and keep your records Making Tax Digital (MTD) compliant
