VAT: what you need to know as a start-up

VAT isn’t glamorous – but getting it wrong can be costly. Whether you’re registering from day one or planning ahead, understanding how VAT works is essential for cashflow, compliance and credibility.

Here’s what every founder needs to know.

Do you need to register for VAT?

You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period.

But, even if you’re below the threshold, voluntary registration might make sense – especially if:

You’ve got high start-up costs and want to recover input VAT
You want to present as a more established, credible business

We’ll help you assess the timing, structure and scheme that works best for your situation as there can be a number of things to think about, such as the geographic location of your customers, and whether they are businesses or individuals.

Key VAT concepts

Output VAT – charged on your sales
Input VAT – paid on goods and services you buy

You pay HMRC the difference via your VAT return. Simple in theory – but easy to mismanage without the right set-up, especially if you have digital sales such as software subscriptions and app purchases.

VAT schemes worth knowing

Depending on your sector, sales cycle and admin appetite, these might apply:

Group VAT – useful if you’re running multiple entities
Cash accounting scheme – only pay VAT when you’re paid
Annual accounting – one return per year with instalments
Flat rate scheme – simplified percentage-based VAT

Group VAT is particularly relevant for more sophisticated set-ups like holding companies or start-ups with investment structures – something we handle regularly.

You must go digital

All VAT-registered businesses must now: