VAT Matters UK – August 2025 – VAT registrations
In this article, David Reaney and Emma Robinson explore some key elements of the VAT registration rules for businesses operating in the UK. The area of VAT registration continues to see increased attention in the UK for various reasons, including the recent increase in the threshold after a long period of this being frozen; speculation that the threshold might be revisited (either increased or a dramatic decrease); fraudulent attacks on the registration system; and the level of enquiries from HMRC during the VAT registration process.
This article aims to shed light on the historic and future tests for VAT registration, provide insights into voluntary and mandatory VAT registrations, and explore the effective date of registration. Whilst most aspects of VAT are subject to a four-year cap, a mandatory VAT registration is not subject to this time limit, and we have recently seen overseas businesses having to go back as far as 12 years to rectify their VAT position in the UK.
VAT Registration Thresholds
The VAT registration threshold applying to a business will depend on where it is established and the nature of supplies it makes.
For the purposes of this article, we will focus on the standard thresholds for established and non-established business. Specific rules apply to other circumstances, e.g. acquisitions and distance selling. A UK established business will have the benefit of a threshold of £90,000, meaning small businesses can operate under the threshold and not register for VAT, whereas a non-established business will have a threshold of £0.
Historic and Future Test for VAT Registrations
To assess when the threshold is breached, two primary tests must be considered, the historic test and the future test.
Historic test
The historic test is based on a business’s turnover in the past 12 months (on a rolling 12-month period – not on a calendar 12-month period). If at the end of any month, the value of a UK established business’s taxable supplies in the previous 12 months exceeds the registration threshold (£90,000), the business must register for VAT with HMRC.
If this test triggers the requirement to register, the VAT registration will be effective from the first day of the second month after the taxable supplies rose above the threshold.
The historic test requires continuous monitoring of turnover to ensure that the registration is completed promptly once the threshold is exceeded.
Future test
On the other hand, the future test looks ahead at the turnover for the next 30 days alone. If a business expects that the value of its taxable supplies will exceed the registration threshold within the next 30 days, it must register for VAT with effect from that date, i.e., the effective date of registration will be the date it was known the value of supplies would exceed the registration threshold in the following 30 days. This test is particularly relevant for businesses experiencing rapid growth or receiving large orders that would push them over the threshold and aims to catch these orders, so they fall within the scope of UK VAT.
Voluntary Registrations
If a business is not required to register in the UK (because it hasn’t breached the threshold) in certain circumstances it can choose to voluntarily register for VAT.
There are several reasons why a business might choose to register voluntarily, including:
- Professional image – being VAT-registered can enhance a business’s credibility and professional image, especially when dealing with other VAT-registered entities.
- Reclaiming VAT – registered businesses can reclaim VAT on their purchases, which can be beneficial for businesses with significant input VAT, i.e., the business is in the start-up phase and incurring a significant amount of input tax.
- Preparation for growth – voluntarily registering for VAT can ease the transition when a business’s turnover grows and exceeds the threshold, ensuring compliance from the outset.
Exempted or Excepted from VAT Registration
Exemption from VAT registration
If a business makes only zero-rated supplies but the value of these supplies exceeds the VAT registration threshold it can apply to HMRC for an exemption from VAT registration. This exemption would be approved on the basis that they will continue making solely or mostly zero-rated supplies and would need to be revisited if that ceased to be the case.
Exception to VAT Registration
Certain business may apply for an exception from registration. This is different from the exemption mentioned above and is intended for businesses which temporarily exceed the registration threshold but will then return to operating below the threshold. If a business’s supplies went over the registration in the previous 12-months but they can evidence to HMRC that their taxable supplies will not go over the deregistration threshold (currently £88,000) in the next 12 months, it should be possible to secure an exception from registration.
In both circumstances for an exemption or an exception from registration, HMRC must be notified.
Backdating a VAT Registration
Backdating a VAT registration can occur in two scenarios, voluntary registration and mandatory registration. The approach taken by HMRC varies depending on the nature of the registration.
Voluntary Registration
When a business voluntarily registers for VAT and requests the registration to be backdated, HMRC may allow the backdating for up to four years, but the business must have had an entitlement to be registered for the whole period. In practice HMRC will be reluctant to backdate a registration and evidence will need to be provided in support of any such request.
Mandatory Registration
In the case of mandatory registration, if a business fails to register on time, HMRC will apply an effective date of registration based on the date the business should have registered. This retrospective registration means the business will have to account for VAT on all taxable supplies made since the date it should have been registered which can have a major cashflow impact for this business if it has not been charging and collecting VAT for prior years. This will likely impact businesses making supplies direct to consumers more as they are unlikely to be able to collect VAT from their customers after the supply has been made.
Unlike the backdated voluntary registration, this is not subject to the normal four-year cap and businesses will be expected to go back beyond four years to the date it should have registered. HMRC may also impose penalties for the late registration.
Penalties for late registration
Penalties for late registration due to non-deliberate behaviour can be up to 30% of the tax due. This penalty can be higher for deliberate behaviour. Penalties can be reduced by telling HMRC about the late registration, helping them quantify the tax due and giving them access to records to assist with the quantification.
If a reasonable excuse applies, then no penalty should apply.
Handling Retrospective VAT Registrations
It is expected that domestic businesses should be aware of the VAT registration obligations and register accordingly. However, we are aware of overseas businesses, often making electronic supplies of services, which have triggered a VAT registration obligation due to supplies to consumers in the UK and are not familiar with the local obligations. In such cases a VAT registration is required and the effective date will likely be the date of the first supply to a UK consumer.
The process for handling a backdated VAT registration involves several steps:
- Review Past Transactions – the business must review all transactions to establish the correct effective date of registration and quantify the VAT due under the first VAT return.
- Issue VAT Invoices – if VAT was not charged on past supplies, the business must consider if VAT invoices can/should now be raised.
- Reclaim Input VAT – the business can reclaim VAT on its purchases for the backdated period, subject to the usual rules on input tax recovery and any partial exemption restrictions and this should be included in the long first return.
- File VAT Returns – the business must complete a long period VAT return for the backdated period, ensuring all VAT is correctly accounted for and declared.
For a backdated VAT registration, the first VAT return will be for the period in which the business was due to be registered until a current month end (as determined when the registration is processed). This can mean that for some businesses who are late in registering for VAT, their first long period VAT return can cover a period of many years.
Conclusion
Understanding the requirements and implications of VAT registration is essential for businesses operating in the UK. Whether registering voluntarily or breaching a threshold, businesses must ensure compliance with HMRC’s regulations to avoid penalties and take advantage of VAT recovery opportunities.