VAT FAQs

Only once you're VAT-registered with HMRC. You can't charge VAT before your registration takes effect — doing so is a serious compliance problem, since you'd be collecting money as tax that you have no authority to collect.

Once you're registered, you charge VAT on the taxable goods and services you supply, at whichever rate applies to them, and you must issue VAT invoices showing your VAT registration number.

There's a gap worth planning for: if you apply to register and HMRC backdates your effective date, you may owe VAT on sales made before your VAT number arrives. The usual approach is to raise invoices for the VAT-inclusive total and reissue them as proper VAT invoices once the number comes through.

Registration becomes compulsory once your total VAT-taxable turnover over any rolling 12-month period goes above £90,000, or if you expect to pass £90,000 in the next 30 days alone.

The 12-month test is rolling rather than tied to your financial year, so it's worth checking each month rather than only at year end — a strong few months can push you over without the annual figure looking unusual.

Yes. Voluntary registration lets you reclaim the VAT on your purchases, which can be worth it if you buy a lot from VAT-registered suppliers, or if you sell mainly to other VAT-registered businesses who can reclaim whatever you charge them.

The trade-off is that you then have to charge VAT on your own sales. If your customers are consumers who can't reclaim it, that's effectively a 20% price rise or a 20% cut to your margin. You also take on quarterly VAT return obligations and Making Tax Digital record-keeping.

They look similar on an invoice — no VAT charged either way — but they behave very differently.

Zero-rated supplies are taxable, just at 0%. They count towards your taxable turnover for the registration threshold, and you can still reclaim VAT on related purchases. Most food and children's clothes are zero-rated.

Exempt supplies sit outside the VAT system: they don't count towards the registration threshold, and you generally can't reclaim VAT on costs relating to them. Postage stamps and many financial and property transactions are exempt.

There are three: the standard rate of 20% covering most goods and services, a reduced rate of 5% for things like domestic energy and children's car seats, and a zero rate of 0% covering most food and children's clothes.

Some supplies are exempt from VAT entirely, which as above isn't the same as zero-rated. HMRC publishes a category-by-category list if you're unsure where something falls.

To add VAT: multiply the net amount by the rate and add it on. £100 × 0.2 = £20 VAT, giving a £120 gross total.

To remove VAT: divide the gross by 1 plus the rate. £100 ÷ 1.2 = £83.33 net, leaving £16.67 as VAT.

At the 20% rate the VAT portion of a gross price is always exactly one sixth — a handy check. The calculator on the homepage does both directions for you.

If you're VAT-registered, you can usually reclaim VAT on goods and services bought for business use, as long as you hold a valid VAT invoice for them.

There are exceptions worth knowing: VAT on client entertainment generally can't be reclaimed at all, purchases used partly for private purposes need apportioning, and costs relating to exempt supplies aren't reclaimable. Cars are also heavily restricted.

You can apply to deregister if your VAT-taxable turnover for the next 12 months is expected to fall below the deregistration threshold of £88,000 — set slightly below the registration threshold so businesses hovering around it aren't forced to flip in and out each year.

Deregistration is compulsory if you stop making taxable supplies altogether, for example if the business closes or is sold.

A full VAT invoice needs a unique invoice number, your business name, address and VAT registration number, the invoice date and time of supply, the customer's name and address, a description of what you supplied, the net amount, the VAT rate and amount charged, and the total payable.

Simplified invoices with fewer details are allowed for smaller retail sales. Your customer needs a valid VAT invoice to reclaim the VAT, so getting these details right matters to them as much as to you.

VAT sits across three control accounts: 2200 (Sales Tax Control Account) for VAT charged on sales, 2201 (Purchase Tax Control Account) for VAT paid on purchases, and 2202 (VAT Liability) for the net position owed to or from HMRC.

Our worked example of a quarter's VAT return walks through how the three interact.