VAT: How it works and how to register

VAT: How it works and how to register

If you want to learn more about VAT, including what it is, how it works and how to register for it, this guide is for you.

What is VAT?

VAT stands for Value Added Tax. It is a tax added to most products and services sold by VAT-registered businesses.

How VAT works

VAT-registered businesses have specific responsibilities. They must:
  1. Include VAT in the price of all services and goods at the correct rate
  2. Keep a record of how much VAT they pay on items bought for the business
  3. Account for VAT on any goods imported to the UK
  4. Report the amount of VAT charged to customers and paid to other businesses by sending a VAT return to HM Revenue and Customs, usually every three months
  5. Pay any VAT owed to HMRC
The VAT you pay is usually the difference between the VAT you’ve charged your customers and the VAT you’ve paid to other businesses. 

If you’ve charged more than you’ve paid, you’ll have to pay the difference to HMRC. And if you’ve paid more than you’ve charged, HMRC will usually refund the difference.

How much VAT to charge

There are three different rates of VAT. Which rate you should apply depends on the goods and services and how they’re used. Most goods and services, including automotive repair and maintenance services, are charged at the standard rate of 20%.

When to register for VAT

If your business generates more than £90,000 in VAT-taxable turnover, you must register for VAT. If your business turns over less than £90,000, registering for VAT is optional.

You have to notify HMRC of your requirement to register within 30 days of the date you exceed the £90,000 threshold. 

If you exceeded the threshold based on historic sales (e.g. looking back at the past 12 months), your registration date will be one month and one day after the month-end when you exceeded the threshold.

If you think your taxable turnover will be more than £90,000 in the following 30-day period, you must notify HMRC within 30 days, and you will be VAT-registered from the date this expectation arose.

How to register

You can register for VAT online with HMRC. You’ll get a VAT online account, which you’ll use to submit your return each quarter. In some circumstances, you may need to register via post on a VAT1 form. When you complete your application, you’ll need to know your turnover, business activities and bank details.

You should get a VAT registration certificate within 30 days. This certificate will appear in your online VAT account.




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