VAT for limited companies: questions answered

VAT registration becomes compulsory at £90,000 of taxable turnover, and the scheme you choose changes what you keep. This hub answers the registration, scheme, overseas and penalty questions directors ask.

What is the VAT registration threshold and when must I register? You must register once taxable turnover exceeds £90,000 in any rolling twelve month period, or when you expect to exceed it within the next 30 days alone. Registration is required within 30 days of the month in which the threshold was crossed.

Should I register for VAT voluntarily? Register voluntarily if your customers are VAT registered businesses, because they reclaim the VAT you charge and you recover VAT on your costs. Avoid it if you sell mainly to consumers, because adding 20% either cuts your margin or raises your prices.

What is the VAT Flat Rate Scheme and is it worth it? Under the Flat Rate Scheme you charge customers 20% but pay HMRC a fixed percentage of your VAT-inclusive turnover, usually without reclaiming input VAT. It suits low-cost service businesses, but the limited cost trader rate of 16.5% removes most of the benefit.

What is a limited cost trader? A limited cost trader spends less than 2% of VAT-inclusive turnover on relevant goods, or less than £1,000 a year. Such businesses pay 16.5% under the Flat Rate Scheme instead of their sector rate, which usually removes any saving.

Should I use cash accounting or accrual accounting for VAT? Cash accounting means you account for VAT when money is received and paid, rather than when invoices are issued. It suits businesses that give credit or suffer late payment. Standard accounting suits businesses paid up front or reclaiming large amounts on credit purchases.

How do I reclaim VAT on purchases made before registration? You can reclaim VAT on goods bought up to four years before registration, provided you still hold them or they were used to make goods you still hold, and on services received up to six months before registration, if they relate to taxable business activity.

How do I charge VAT to customers outside the UK? For B2B services, the place of supply is usually where the customer belongs, so no UK VAT is charged and the customer accounts for it under the reverse charge. Exported goods are usually zero rated with proof of export. B2C rules vary by service type.

What is the VAT reverse charge for construction services? The domestic reverse charge applies to most construction services between VAT registered businesses within the Construction Industry Scheme. The supplier does not charge VAT; the customer accounts for both output and input VAT on its own return.

What are the VAT rules for selling digital services to the EU? Digital services sold to EU consumers are taxed in the customer's country at that country's rate, from the first sale, with no threshold for UK sellers. Most register for the non-Union One Stop Shop in a single EU member state to file one return.

What are the penalty points for late VAT returns? Each late VAT return earns one penalty point. Reach the threshold, which is four points for quarterly filers, and you receive a £200 penalty plus a further £200 for every subsequent late return until the points expire.

Can I deregister for VAT if my turnover falls? Yes. You can deregister voluntarily if you expect taxable turnover in the next twelve months to be below the £88,000 deregistration threshold, and you must deregister if you stop making taxable supplies altogether.

Do I need to be on Making Tax Digital for VAT? Yes. Every VAT registered business, whatever its turnover, must keep digital VAT records and submit returns through MTD compatible software. Typing figures into the old HMRC portal is no longer available.

I've gone over the VAT threshold — what do I do now? Register online within 30 days of the end of the month you crossed £90,000. HMRC sets your effective date of registration; you then charge VAT from that date, update invoices and pricing, and prepare for Making Tax Digital reporting.

How fast can I get a VAT number? HMRC does not commit to a fixed number of days for a VAT number, and processing time depends on the volume of applications, whether your details match Companies House records, and whether extra checks are triggered. You can trade and invoice while you wait, but must account for VAT from your effective date once it is confirmed.

What does VAT registration with an accountant involve, and what does it cost? A VAT registration service covers assessing whether registration is compulsory or worthwhile, choosing between standard, cash and flat rate accounting, submitting the application to HMRC, and setting up Making Tax Digital software. It is typically included within our fixed monthly packages at £89, £169 or £289 plus VAT, rather than charged separately.

How do quarterly VAT returns work for a small company? Once registered, most small companies file a VAT return every three months, one month and seven days after the period ends. Records must be kept digitally and submitted through Making Tax Digital compatible software, with payment due by the same deadline as the return.

How does VAT work for an ecommerce or Shopify business in the UK? A UK ecommerce or Shopify business registers for VAT on the same £90,000 threshold as any other company, charging VAT on UK sales once registered. Selling through marketplaces, into the EU, or as digital downloads brings extra rules on deemed suppliers, OSS reporting and place of supply.

Do I need EU VAT registration and a fiscal representative to sell into the EU? A UK company selling goods held in the EU, or exceeding certain thresholds there, may need to register for VAT in an EU member state, and some states require a non-EU business to appoint a local fiscal representative who is jointly liable for the VAT. Using OSS, IOSS or an EU marketplace can often avoid this.

Rates, thresholds and deadlines quoted here reflect the 2026/27 UK position and current Companies House and HMRC guidance. Check GOV.UK, or ask us, before relying on them for your own company.