A Straightforward Guide to VAT for UK Businesses

VAT can feel like one of the trickiest parts of running a business, but understanding the basics goes a long way. Whether you're self-employed, running a growing company, or somewhere in between, staying on top of VAT can protect your cash flow, help avoid penalties, and even boost your credibility with clients.

Here’s a clear, updated overview to help you get to grips with it.



What Is VAT?

VAT (Value Added Tax) is a tax charged on most goods and services sold in the UK. It’s paid by your customers - but you’re responsible for collecting and sending it to HMRC.

• You charge VAT on your sales.
• You pay VAT on most business expenses.
• You report the difference via VAT returns.

It’s called "value added" because each business in the supply chain only pays VAT on the value they’ve added to a product or service.

Do You Need to Register?

You're required to register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period (2025/26 threshold).

You can also register voluntarily - this can be helpful if:

• You mostly deal with VAT-registered businesses.
• You have significant VATable expenses.
• You want to appear more established.

Once you’re registered, VAT becomes part of your regular admin - so make sure it’s the right move for your business.

Charging & Paying VAT

Charging VAT
If you’re registered:

• You must charge VAT on taxable sales.
• Invoices must include your VAT number and the correct rate.
• Even zero-rated goods must still be reported.
• You cannot charge VAT unless you’re officially registered.

Current VAT rates:

• 20% Standard rate - most goods and services
• 5% Reduced rate - some energy-saving products, children’s car seats
• 0% Zero rate - most food, books, children’s clothing

Paying VAT to HMRC
VAT returns are usually submitted quarterly, with payment due one month and 7 days after each period ends.
You can pay via:

• Direct Debit
• Bank transfer
• Debit/credit card
• Through your HMRC business account

Choosing a VAT Scheme

There’s no one-size-fits-all - here’s a quick breakdown of your options:

1. Standard VAT Scheme

• Charge VAT on sales, reclaim on purchases, file quarterly.

1. Flat Rate Scheme (turnover under £150,000)

• Pay a fixed % of turnover. Less admin, but you can't reclaim most VAT on purchases.

1. Cash Accounting Scheme

• VAT is due only when you're paid by customers - useful for managing cash flow.

1. Annual Accounting Scheme (turnover under £1.35 million)

• One VAT return per year, with advance payments throughout the year.

Not sure which is right? We can help you choose the most cost-effective and admin-friendly option for your business.

Reclaiming VAT on Expenses

You can reclaim VAT on most business-related purchases, including:

• Equipment, tools, and stock
• Software (like QuickBooks), subscriptions, and services
• Mileage and travel (some restrictions apply)

You can’t reclaim VAT on:

• Client entertainment
• Personal expenses
• Items without valid VAT invoices

Good recordkeeping is essential - and under Making Tax Digital (MTD), records must be kept digitally using compatible software. At SBX, we primarily use QuickBooks, though we’re also proficient with Xero, Sage, and FreeAgent.

Avoiding Common VAT Pitfalls

• Missing the registration threshold - It’s up to you to monitor your turnover. HMRC won’t notify you.
• Reclaiming incorrectly - Only reclaim VAT on legitimate business expenses with valid invoices.
• Claiming VAT on vehicles - Complex rules apply. Always speak to an accountant before making large purchases.
• Poor recordkeeping - HMRC can audit you at any time. Using cloud-based software helps stay compliant and efficient.

Frequently Asked VAT Questions

Is VAT based on turnover or profit?
VAT is based on turnover, not profit.

Can I register before hitting £90,000?
Yes - voluntary registration is allowed and sometimes advisable.

Can I reclaim VAT on costs before registration?
Yes - up to 4 years on goods and 6 months on services, if still in use by the business.

How often are VAT returns filed?
Usually every 3 months, unless you're on the Annual Accounting Scheme.

Do I need software for VAT?
Yes - under MTD rules, all VAT-registered businesses must use digital software like QuickBooks to file and store VAT records.

Need Help with VAT?

Understanding VAT is one thing. Staying compliant, choosing the right scheme, and managing payments on time is another.

At SBX Accountants, we help businesses stay on top of VAT - from registration and software setup to filing returns and staying MTD-compliant. Whether you're just starting or looking to optimise your current setup, we're here to help.

👉 Visit sbxaccountants.com to get started.