Pillar Guide

UK VAT: The Complete Guide

Threshold, registration, schemes, and compliance.

Value Added Tax (VAT) is one of the most complex areas of UK business taxation. This guide demystifies the registration rules, rates, schemes, and deadlines every limited company director should know.

VAT at a Glance

Registration Threshold

£90,000

Standard Rate

20%

Reduced Rate

5%

Zero Rate

0%

The VAT Registration Threshold

You must register for VAT if your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period. This is not the tax year — it is a rolling window. You must register within 30 days of the end of the month in which you crossed the threshold.

You should also register if you expect your turnover to exceed £90,000 within the next 30 days alone (for example, if you have signed a large contract).

Important note on "taxable turnover"

Taxable turnover includes standard-rated (20%) and zero-rated (0%) supplies, but excludes exempt supplies (e.g. insurance, financial services). If you supply mostly exempt services, the threshold may not apply in the same way.

Mandatory vs. Voluntary Registration

Mandatory Registration

Required when:

  • Rolling 12-month taxable turnover exceeds £90,000
  • You expect to exceed £90,000 in the next 30 days
  • You take over a VAT-registered business

Voluntary Registration

May be beneficial when:

  • Your customers are primarily VAT-registered businesses
  • You have significant VAT on purchases to reclaim
  • You want to appear more established
  • You are approaching the threshold and want predictability

VAT Accounting Schemes

Standard VAT Accounting

All VAT-registered businesses

Account for VAT on each invoice raised (output) and received (input). Pay the net amount quarterly.

Cash Accounting Scheme

Taxable turnover up to £1.35m

Only account for VAT when payment is received or made. Protects cash flow with slow-paying customers.

Flat Rate Scheme

Taxable turnover up to £150,000

Pay a fixed percentage of gross turnover to HMRC. Simpler administration; may result in lower or higher VAT bill depending on your industry.

Annual Accounting Scheme

Taxable turnover up to £1.35m

One VAT return per year. Make 9 advance payments based on previous year's liability. Good for predictable VAT bills.

Making Tax Digital for VAT

Since November 2022, all VAT-registered businesses must keep digital VAT records and submit VAT returns using HMRC-approved Making Tax Digital (MTD) compatible software. You cannot submit VAT returns manually through the HMRC portal.

MTD-compatible software includes Xero, QuickBooks, FreeAgent, Sage, and many others. Your accounting software must have a direct digital link to HMRC for VAT return submission.

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