In the UK, VAT registration isn’t compulsory for everyone; while some companies are required to register for VAT, it’s optional for many freelancers, entrepreneurs, and small businesses.
In this blog post, we take a look at the advantages and disadvantages of voluntary VAT registration, the duties and responsibilities that come with registering for VAT, and how you should handle HMRC’s Making Tax Digital initiative if you’ve registered for VAT voluntarily.
Who needs to register for VAT?
VAT registration is compulsory once your business crosses the VAT threshold, which is currently £85,000. You should register if you expect your VAT taxable turnover to cross this threshold in the next 30 days or if you had a taxable turnover of more than £85,000 over the last 12 months.
If your turnover doesn’t – and isn’t expected to – cross this threshold, you usually don’t need to register for VAT, although you can opt-in voluntarily.
How to voluntarily register for VAT
If you’re registering for VAT voluntarily, you’ll follow the same registration process as businesses that are required to register.
The majority of businesses – including VAT groups and partnerships registering under one number – can register for VAT online. When you register for VAT online, you’ll create an online VAT account that you will use for reporting your VAT.
However, you will need to register via post if you want to apply for a registration exception, join the Agricultural Flat Rate Scheme, or register business divisions under separate VAT numbers.
Responsibilities of businesses that voluntarily register for VAT
If you voluntarily register for VAT, you’ll take on the same duties and responsibilities as businesses that are required to register for VAT. This means that you will need to:
- Charge VAT (and charge the right amount!)
- Pay any VAT due to HMRC
- Submit VAT Returns
- Keep records and an account for your VAT.
MTD obligations and voluntary VAT registration
If your business is registered for VAT, you might also need to comply with Making Tax Digital, which is an HMRC initiative to digitise VAT Returns. Under MTD, businesses are required to keep online, digital records of their VAT and report their VAT using online Making Tax Digital software.
At the moment, Making Tax Digital is not compulsory for every VAT-registered business, and you only have to comply with the rules for MTD if you have a turnover above the VAT threshold (although certain complex businesses are exempt). If you have a taxable turnover of less than £85,000, you are not yet required to register for MTD – although this threshold may change in the future.
In other words, if you have to register for VAT, you probably have to register for MTD, and if you’ve chosen to register for VAT, you can also choose whether or not to register for MTD.
Advantages and disadvantages of voluntary VAT registration
While voluntary VAT registration might be a good option for many businesses, others will choose to remain unregistered. To decide whether you should voluntarily register for VAT, it’s important that you weigh up the advantages and disadvantages of voluntary VAT registration.
Advantages of voluntary VAT registration
One of the main advantages of voluntarily registering for VAT is that your business will able to reclaim the VAT on purchases made by your business.
Furthermore, all businesses with a taxable turnover above £85,000 need to register for VAT and may face penalties if they fail to do so. If you register for VAT before you reach the VAT threshold, you can ensure that you’re registered on time and avoid fines for late registration.
Similarly, if you expect to register for VAT at a later date, you may need to adjust your prices and accounting process. Registering for VAT early on therefore means that you don't need to spend time making these changes.
Disadvantages of voluntary VAT registration
One of the main disadvantages of voluntarily registering for VAT is that the price of your products may appear more expensive to the end user.
Another important drawback of voluntary VAT registration is that VAT-registered businesses take on a number of different responsibilities (such as filing VAT Returns, maintaining VAT records, and keeping track of VAT invoices and receipts), which adds additional bookkeeping and administration to your workload.
Voluntary VAT registration and Debitoor
If you’ve voluntarily registered for VAT, it’s important that you use invoicing software that helps you manage your VAT.
With Debitoor, it’s easy to indicate that you’ve registered for VAT. Simply go to your account settings, scroll down to ‘Apply VAT to income and expenses’, and click to enable.
Once you’ve enabled VAT, you’ll be able to apply VAT to your invoices and expenses, and you’ll be able to create up-to-date VAT reports that can be sent directly to HMRC through or Making Tax Digital feature.