Value Added Tax (VAT) is a key part of running a business in the UK, yet its complexity often leaves companies struggling to keep up with changing thresholds, rates, and compliance requirements. Whether you’re a small business owner, a growing enterprise, or an international company entering the UK market, understanding VAT regulations is critical to avoiding penalties and staying ahead.

From VAT registration thresholds to quarterly VAT submissions and the nuances of zero-rated and exempt services, this guide simplifies the essentials of VAT in the UK. Plus, discover how a proactive partner like Accace Adept can streamline your VAT compliance, leaving you free to focus on driving your business forward.

Let’s explore everything you need to know about VAT in the UK—so you can stay compliant, efficient, and prepared for growth.

VAT rates in the UK

The UK applies different VAT rates depending on the type of goods and services provided. Understanding these rates is essential for businesses to ensure accurate VAT calculation and compliance.

Standard VAT rate

The standard VAT rate of 20% applies to most goods and services in the UK, including:

• Retail goods and general services
• Professional services (e.g., accounting, consulting)
• Electronics, furniture, and clothing

Reduced VAT rate

The reduced rate of 5% applies to specific items, such as:

• Domestic energy (gas and electricity for homes)
• Children’s car seats
• Energy-saving materials for residential properties

Zero VAT rate

Certain goods and services are taxed at 0%, meaning no VAT is charged but businesses can still reclaim input VAT. Examples include:

• Most food and drink (excluding alcohol, catering, and restaurants)
• Children’s clothing and footwear
• Books, newspapers, and printed materials
• Passenger transport (e.g., trains, buses, and flights within the UK)

Exempt goods and services

Some items are exempt from VAT, meaning VAT is neither charged nor reclaimable. Examples include:

• Financial and insurance services
• Education and training
• Health and medical services
• Charitable fundraising activities

Out of scope

Certain activities fall outside the scope of VAT, such as wages, statutory fees, or services provided by overseas suppliers that don’t meet UK VAT obligations.

VAT registration thresholds

As of April 1, 2024, the VAT registration threshold in the UK is £90,000. This means:

• If your business’s taxable turnover exceeds £90,000 over any consecutive 12-month period, you are legally required to register for VAT with HM Revenue & Customs (HMRC).
• If you anticipate that your taxable turnover will exceed £90,000 within the next 30 days, registration must be completed by the end of that 30-day period. In this case, the effective registration date is when the business first realizes it will surpass the threshold.

For businesses falling below the threshold, VAT registration remains optional. Voluntary registration can be particularly advantageous for companies serving VAT-registered customers, as it allows these clients to reclaim the VAT charged, adding credibility and professionalism to the business.

The deregistration threshold is currently set at £88,000. Businesses whose taxable turnover drops below this amount may choose to deregister, simplifying operations and reducing administrative burdens.

Why monitoring VAT turnover matters

Closely tracking your business’s taxable turnover is essential to stay compliant with HMRC’s VAT obligations. Failure to register on time can result in:

• Penalties for late registration.
• Interest charges on unpaid VAT.

Regular reviews of your financials, supported by professional accounting services, ensure timely registration and avoid unnecessary costs.

VAT submissions and returns

Once a business is registered for VAT, it must comply with regular VAT submission and return requirements as outlined by HM Revenue & Customs (HMRC). These processes ensure businesses report their VAT liabilities accurately and on time while staying compliant with UK regulations.

VAT submission deadlines

Businesses are typically required to submit a VAT return to HMRC every quarter (known as the accounting period). Some businesses may opt for annual submissions depending on their VAT scheme. The key deadlines include:

• Submission deadline: 1 calendar month and 7 days after the end of the accounting period.
• Payment deadline: Payments must also be made by this date, ensuring VAT liabilities are settled promptly to avoid penalties.

Example: If your VAT quarter ends on 31 March, your VAT return and payment are due by 7 May.

What to include in a VAT return

A VAT return summarizes the VAT your business has:

• Charged (output VAT) on sales of goods and services.
• Paid (input VAT) on purchases and expenses.

The return calculates:

• The difference between output VAT and input VAT.
• The amount payable to HMRC or refundable to the business.

Making Tax Digital (MTD) for VAT

Under Making Tax Digital (MTD), businesses must:

• Keep digital records of all VAT-related transactions.
• Use HMRC-approved software to submit VAT returns electronically.

This mandate applies to all VAT-registered businesses, making it essential to use compliant accounting software to streamline submissions and reduce errors.

Simplifying VAT compliance with Accace Adept

Managing VAT obligations can be complex, particularly for businesses experiencing growth or operating across multiple sectors. At Accace Adept, we simplify VAT compliance for businesses in the UK, ensuring all requirements are met accurately and on time.

Our services include:

• VAT registration and deregistration support.
• Ongoing compliance monitoring to track turnover and thresholds.
• Preparation and submission of VAT returns in line with HMRC regulations.
• Advisory services to help you determine whether voluntary VAT registration benefits your business.

With a proactive approach and advanced accounting technology, our team ensures your VAT obligations are handled efficiently, so you can focus on growing your business. Whether you’re a startup or an established enterprise, Accace Adept is your trusted partner for VAT and accounting solutions in the UK.

Michelle Martin

Managing Director | Accace Adept

Book a meeting with Michelle