VAT, or Value Added Tax, is a tax applied to many goods and services sold in the UK. Once a business becomes VAT registered, it generally charges VAT on applicable sales, keeps appropriate VAT records and submits VAT Returns to HMRC. For the 2026–27 tax year, the standard VAT rate remains 20%, with a reduced rate of 5% and a zero rate of 0% applying to qualifying goods and services.
A business generally needs to register for VAT when its VAT-taxable turnover exceeds £90,000 or when it expects to go over the threshold under the applicable HMRC rules. The voluntary VAT deregistration threshold is currently £88,000. VAT-taxable turnover is not simply your profit. It is broadly the total value of supplies that are not exempt from VAT. This distinction is important because a business can have relatively low profit while still exceeding the VAT registration threshold because of its sales turnover.
VAT registration rules can affect many different types of businesses, including limited companies, sole traders, partnerships, freelancers, contractors, online businesses, retailers and service businesses. Business owners should monitor their taxable turnover regularly rather than waiting until the end of the financial year, as the registration requirement can arise during the year.
Businesses can also choose to register for VAT voluntarily even when their taxable turnover is below the compulsory registration threshold. Voluntary VAT registration may be beneficial for businesses that have significant VAT-bearing business costs, mainly work with VAT-registered businesses, want to reclaim eligible input VAT or expect to exceed the VAT threshold in the near future. However, VAT registration also brings additional administrative and reporting responsibilities, so voluntary registration is not automatically the best option for every business.
Once registered for VAT, your business may need to charge the correct VAT rate on taxable sales, issue appropriate VAT invoices, maintain accurate VAT records, keep digital records where required, submit VAT Returns and pay any VAT owed to HMRC. Businesses must also keep sufficient evidence to support any VAT they reclaim on eligible business expenses. VAT Returns are usually submitted every three months, although alternative VAT accounting schemes may apply depending on the circumstances of the business.
The VAT rate you charge depends on the goods or services your business supplies. The 20% standard VAT rate applies to most taxable goods and services, while the 5% reduced rate applies to certain qualifying supplies. Some taxable goods and services are zero-rated at 0%. Zero-rated supplies are still considered taxable supplies even though no VAT is charged to the customer. This is different from VAT-exempt supplies, which fall outside the normal VAT charging rules. Understanding the difference is important because using the wrong VAT rate can result in incorrect invoices, VAT Returns and tax liabilities.
VAT can become more complicated when a business sells different types of goods or services, has a mixture of exempt and taxable sales, trades internationally, imports or exports goods, uses a VAT accounting scheme or has expenses that include both business and private use. In these situations, additional VAT rules may apply, and professional advice can help ensure that the correct VAT treatment is being used.
At EasyFig, we help UK businesses understand their VAT responsibilities, monitor taxable turnover, register for VAT and maintain compliant VAT records. Whether you’re approaching the VAT registration threshold or considering voluntary VAT registration, our team can help you understand your options and manage your VAT obligations with confidence.
Book a free consultation with EasyFig today.