Principles of VAT: registration, categories, invoicing and records
Registration
A business must register for VAT once its taxable supplies (standard-, reduced- and zero-rated sales, but not exempt or outside-scope income) pass the threshold - £90,000 of turnover in any rolling 12 months (from 1 April 2024), with deregistration at £88,000. Two tests matter:
- Backward look: if, at the end of any month, taxable supplies for the previous 12 months exceed the threshold, notify HMRC within 30 days; registration takes effect from the first day of the second month after that month end.
- Forward look: if there are reasonable grounds to expect the threshold will be exceeded in the next 30 days alone, notify before the end of that 30-day period; registration is backdated to the start of it.
Categories of supply
Standard-rated 20%, reduced-rated 5% (domestic fuel and power, children's car seats), zero-rated 0% (most food, books, children's clothing, exports), exempt (insurance, most education and healthcare) and outside the scope (wages, dividends, VAT itself). Trap: zero-rated is still taxable, so input tax is recoverable and it counts towards registration; exempt supplies give no input tax recovery and do not count.
Invoicing and records
A full VAT invoice shows the supplier's name, address and VAT number, a unique invoice number, the date, customer details, description and quantity of goods or services, the unit price, rate of VAT, VAT-exclusive total, VAT amount and gross total. Retailers may issue simplified invoices for supplies of £250 or less. Keep VAT records for 6 years.
Worked example: rolling 12-month taxable supplies at 31 March are £91,400, above £90,000. HMRC must be notified by 30 April and VAT is chargeable from 1 May.