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VAT Registration

A popular misconception concerning the formation of a limited company is that you must also register for VAT. In fact, incorporation and VAT registration are two entirely separate things. Sole traders can be VAT registered or not, as can limited companies.

The only time you must go VAT registered is when your sales exceed the VAT registration threshold (find the current threshold here) for the preceding twelve months. There are times when it may be beneficial to be VAT registered before your turnover reaches the registration threshold – however before that point your registration will be voluntary. Once you choose to go VAT registered, there are two schemes you can choose from.

Basic VAT registration

Under the basic VAT scheme you must retain all your receipts and calculate how much VAT you have paid, which you are then able to claim back from HMRC.

Flat-rate VAT registration

Under the flat-rate VAT scheme, which is designed to simplify accounting for small businesses with turnover less than £150,000, you will be assigned a VAT rate based on the type of business you operate (for example an IT consultant will have a rate of 14.5%, a photographer will have a rate of 11%, and a pub will have a rate of 6.5%. Full list available here), which you can use to calculate your VAT return from your VAT-inclusive turnover.

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