You can be voluntarily registered for VAT – and I’ll discuss this in another post – but for the moment this post is about being legally required to register for VAT.
Who can register for VAT
You can register for VAT if you’re in business and you are one of these:
- an individual
- a partnership
- a company
- a club
- an association
- a charity
- any other organisation or group of people acting together under a particular name, such as an educational or health institution, exhibition, conference, etc
- a trust
- a Local Authority
For VAT purposes, the individual or organisation that is in business is known as a ‘taxable person’.
Who can’t register for VAT
You can’t register for VAT if either of these is true:
- you sell only goods or services that are exempt from VAT
- you aren’t in business according to the definition that HM Revenue & Customs (HMRC) uses for VAT purposes
What is business for VAT purposes?
You can only register for VAT if you’re in business. HMRC defines a business as a continuing activity involving getting paid for providing goods or services – in money or another form of payment such as in-kind or barter.
You are in business when, for example:
- you earn an income by carrying on a trade, vocation or profession – by being self-employed or through another entity such as a limited company
- you provide membership benefits as a club, association or similar body in return for a subscription or other form of payment
- you provide certain other activities as a club or other recreational body, charity or other non-profit making body
- you charge admission to a premises
To be in business, these activities must have a degree of frequency and scale and be continued over a period of time.
Even if your activities have some or all the characteristics of a business, they may not be considered a business for VAT purposes if they are essentially a recreation or hobby, or an isolated transaction. So if you only make occasional VAT taxable supplies, or your supplies are minimal, it may be that you don’t need to register for VAT. The one-off or infrequent sale of your personal belongings at a car boot sale or auction, for example, would fall into this category – but buying goods for resale on a regular basis is definitely a business activity.
You’re doing business in the UK, or intend to start
If your place of business is in the UK or you live here
You may need to register for VAT, or you may be able to choose to register voluntarily, if you are doing any of the following kinds of business in the UK:
- Supplying goods or services within the UK. If your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £79,000, or you expect it to go over that figure in the next 30 days alone, you must register for VAT. However, if your turnover has gone over the registration threshold temporarily then you may be able to apply for exception from registration – see the section later in this guide for more information.
There is a section later in this guide on calculating your VAT taxable turnover.
- Taking over a VAT-registered business from someone else.You have to add your own VAT taxable turnover over the last 12 months (if any) to that of the business you’re taking over. If the total goes over the registration threshold on the day of the takeover (currently £79,000), you’ll have to register. However, if your turnover has gone over the registration threshold temporarily then you may be able to apply for exception from registration see the section later in this guide for more information.
- Receiving goods from other countries in the European Union (EU).If you have received goods from other EU countries in the UK (these are known as acquisitions) with a total value greater than £79,000 in the current year since 1 January, or you expect to acquire more than that value in the next 30 days alone, you must register for VAT.
- Supplying goods or services from the UK to other countries. See the section in this guide on supplying goods or services from the UK to other countries.
- Supplying goods or services to the UK from other countries. See the section in this guide on supplying goods or services to the UK from other countries.
Calculating your VAT taxable turnover
Your VAT taxable turnover includes the value of any goods or services you supply within the UK, unless they are exempt from VAT. This means you must also include any supplies you make that would be zero-rated for VAT.
When calculating your VAT taxable turnover you will of course include your sales, but for VAT purposes, you should also include the value of certain other types of supply:
- goods or services that you exchange or barter – see the link below
- supplies of certain services that you receive from suppliers in other countries that you have to ‘reverse charge’ – see the links below
- where you use your own labour to construct certain building or civil engineering works for your own business use with an open market value of £100,000 or more – see the link below
You must not attempt to avoid registration by artificially separating business activities to reduce your turnover. See the section in this guide on artificial separation.
Do not avoid registering for VAT by artificially separating business activities
If you run more than one business, the sales in all those businesses must normally be added together to determine whether or not you must register for VAT.
However, if you are involved in the running of several separate legal entities, you may not need to combine the sales of those businesses to find whether you need to be VAT-registered.
If HMRC decides that you have artificially separated one business into smaller parts to avoid registering for VAT, it can decide that the entire business is a single taxable person and therefore must be registered for VAT. See the description of ‘taxable person’ in the section in this guide on who can and can’t register for VAT.
Situations that HMRC may consider a single taxable person for VAT purposes include:
- Separate entities selling to registered and unregistered customers. The VAT-registered entity sells only to VAT-registered customers, and the entity not registered for VAT sells to customers who are not registered for VAT.
- The same equipment or premises being used by different entities on a regular basis. The premises and/or equipment are owned by one of the parties, who charges rent to the others. This situation may occur in businesses such as launderettes and takeaway food operations.
- Splitting up what is usually a single sale. This is common in industries such as the bed and breakfast trade, where one business supplies the bed and another the breakfast.
If you deliberately avoid registering for VAT, you may be liable to a penalty. For serious offences, the matter will be investigated by HMRC and you may be prosecuted.