Value Added Tax (VAT) is rarely any small business owner’s favourite topic, yet meeting your VAT obligations is one of the surest ways to keep HMRC off your back and your cashflow healthy. Since 1 April 2024 the compulsory VAT registration threshold has stood at £90,000 of taxable turnover in any rolling 12-month period – a limit that remains in place for the 2025/26 tax year (HMRC, 2024). Cross that line, even by just a few pounds, and you must register within 30 days and start charging, recording and paying VAT.
Getting the paperwork – and increasingly the software – right matters because the stakes are high. Penalties for late registration start at 5% of the unpaid VAT and quickly escalate. Meanwhile, HMRC estimates the annual VAT gap – the difference between what should be collected and what actually is – at £8.9bn, or 5% of theoretical liability for 2023/24 (HMRC, 2025). That shortfall keeps the spotlight firmly on compliance, and HMRC’s compliance teams are using data analytics to pick out anomalies faster than ever.
The good news is that VAT does not have to be a constant source of anxiety. With solid record-keeping, the right accounting software and timely professional advice, meeting your VAT obligations becomes a routine part of running a company rather than a monthly panic. In this guide, we explain who must register, what schemes and deadlines apply, and the simple checks every SME can build into everyday processes to stay safely on the right side of the rules.
Meeting your VAT obligations: Registration thresholds and deadlines
The moment your rolling 12-month turnover hits £90,000, you must apply to register within 30 days. Expect to receive a VAT registration number and effective date of registration (often called your EDR). From that date you must do the following.
- Issue VAT invoices: Show your VAT number and charge the correct VAT rate for each supply.
- File digital VAT returns: Submit returns every quarter, one month and seven days after the period end.
- Pay VAT due: Reach HMRC’s bank by the same deadline or set up a direct debit.
If your turnover is likely to exceed the threshold in a single future 30-day period (for instance after winning a large contract) you must register immediately. Equally, if turnover falls below £88,000 you can apply to deregister, but only when it is clear the drop is permanent.
Choosing the right VAT scheme
HMRC offers several schemes designed to simplify calculations or improve cashflow. The main options for small businesses are:
- Flat-rate scheme: Pay HMRC a fixed percentage of gross turnover instead of reclaiming input VAT. Available if taxable turnover will not exceed £150,000 in the next 12 months.
- Cash accounting scheme: Account for VAT when you are paid rather than when you issue an invoice – helpful if customers sometimes pay late. Usable up to £1.35m of annual turnover.
- Annual accounting scheme: Submit one VAT return each year and make instalment payments. Turnover must be below £1.35m.
Selecting the most suitable scheme can reduce administration time and smooth seasonal cashflow. Our VAT service explains each in more detail and models the impact on your numbers.
Deadlines and digital records: Keeping HMRC satisfied
Every VAT registered business must now comply with Making Tax Digital (MTD) rules. That means:
- using MTD-compatible software or bridging tools
- keeping digital records of sales and purchases
- preserving digital links between systems – no manual re-typing.
If you are still using spreadsheets, we can set up a compliant bridge and advise on affordable cloud packages. Our earlier blog, Making Tax Digital guidance, covers the practical steps.
Avoiding common VAT obligations pitfalls
Many HMRC enquiries arise from issues that are straightforward to prevent.
- Late registration: Monitor turnover monthly. Automated alerts in cloud software help.
- Wrong VAT rate: Construction, food and children’s clothing often attract reduced or zero rates. Check every new product or service.
- Mixed supplies: If you bundle items with different rates (such as installation plus goods), apportion values correctly.
- Over-claiming input tax: Only claim VAT on valid business expenses. Private use adjustments are essential for cars, phone bills and utilities.
Best practice record keeping
First rate records underpin everything. The Office for National Statistics (ONS) recorded 2.725m VAT- or PAYE-registered businesses in March 2024, a figure that has remained broadly stable despite economic headwinds (ONS, 2024). The firms that thrive share disciplined habits.
- Daily posting: Capture sales and purchase invoices promptly to spot threshold issues early.
- Quarterly reviews: Reconcile the VAT control account before the return is filed.
- Digital backups: Cloud accounting packages keep HMRC-ready copies, reducing audit risk.
- Retention policy: Store records for six years – longer if you buy capital goods worth over £250,000. Our record keeping tips set out the essentials.
Next steps for stress-free VAT
VAT can feel like a minefield, but with the right approach it need not distract you from growth. Monitor turnover against the £90,000 threshold, choose a VAT scheme that suits your cashflow and keep digital records that tie every figure back to an invoice. Build monthly and quarterly checks into your routine and you will file each return with confidence.
If you are unsure whether you must register, are worried about an impending deadline or simply want reassurance that your software setup meets MTD standards, we are here to help. Our team has guided family-run enterprises and fast-growing tech startups alike through every facet of their VAT obligations for more than 180 years.
Contact us today for a no-obligation chat and put your VAT obligations in expert hands.