Small Business VAT Registration Threshold Explained
Everything you need to know about the VAT registration threshold after April 2024.
Key Highlights
- VAT number is a unique identifier assigned to businesses for value-added tax (VAT) purposes.
- Businesses in the UK and EU must register for a VAT number if they carry out taxable B2C transactions. This includes any sales to consumers that are subject to VAT regulations.
- In contrast, most B2B transactions do not necessitate VAT registration, thanks to the reverse charge mechanism. Under this system, the responsibility for accounting for VAT shifts to the business customer, eliminating the need for the seller to register in such cases.
What is a VAT Number?
A Value Added Tax (VAT) number, also known as a VAT Registration Number (VRN), is a unique nine-digit identifier assigned to businesses for collecting and reporting VAT. In England, Scotland, and Wales, VAT numbers begin with the prefix “GB,” whereas VAT numbers in Northern Ireland start with the prefix “XI.”
What is the importance of VAT numbers?
A VAT number is a unique identifier for each business. The numbers are significant because they enable businesses to report and remit value-added tax to the government. VAT is a consumption tax and business tax.
Insight
The description of VAT varies depending on the perspective:
- For the government, VAT is a consumption tax, similar in purpose to corporate and personal income taxes, as it generates revenue.
- For the consumer, VAT is a tax on the price of goods or services, representing the value added at each production stage.
- For the manufacturer, VAT is a tax on the value they contribute to a product or service. However, they can claim back any VAT paid on their inputs.
- For the seller, VAT is charged at every stage of the production and distribution process, ensuring that only the added value at each step is taxed.
This multi-faceted system ensures transparency and fairness while taxing consumption across the supply chain.
Who needs a VAT number in the UK?
A UK business selling goods Business to Business (B2B) or Business to Customers (B2C) typically requires a VAT number in two situations:
- Compulsory registration: Registration becomes mandatory when a business’s taxable turnover exceeds the VAT registration threshold of £90,000 for the 2024/25 tax year. Once this threshold is reached, the company must register for VAT to comply with tax regulations.
- Voluntary registration: Businesses with a taxable turnover below the threshold can register voluntarily. This decision should be based on carefully evaluating the potential benefits—such as reclaiming input VAT—and the additional administrative responsibilities that come with VAT registration.
An EU-based business may need a UK VAT number under the following circumstances:
- Selling goods via dropshipping or reselling: If you sell goods directly from outside the UK to UK customers, you may need a UK VAT number to comply with import VAT and sales tax regulations.
- Selling digital goods or services cross-border to UK clients through your website: When selling digital products or services (e.g., online courses, e-books or software) to UK customers, you may need to charge VAT.
- Using Amazon FBA and holding goods in a UK fulfilment centre: You may require a UK VAT number if you sell products through Amazon’s UK Fulfilment by Amazon (FBA) program.
Insight
Any business selling directly to UK consumers (B2C) must register for VAT within 30 days of completing its first taxable transaction in the UK. A taxable transaction refers to any sale made in the UK that is not exempt from VAT and does not fall under the reverse charge mechanism (which applies to B2B sales where the buyer accounts for VAT).
It is important to note that taxable transactions include those that are zero-rated for VAT purposes, as zero-rating still constitutes a taxable supply under VAT rules.
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Who needs an EU VAT number?
Non-resident businesses, such as those based in the UK (England, Scotland, and Wales) outside the European Union, often require an EU VAT number if they trade goods or provide services across EU borders. Unlike some tax systems, non-residents have no minimum turnover threshold to register for EU VAT.
Other scenarios that may require businesses to obtain an EU VAT include the following:
- Selling goods to EU business: If your business supplies goods to VAT-registered businesses in the EU, you need an EU VAT number to zero-rate your sales (apply 0% VAT) and meet EU reporting requirements.
- Providing cross-border services: If you provide taxable services to businesses (B2B) or consumers (B2C) within the EU, you may require an EU VAT number, especially if VAT is payable in the recipient’s country.
- For B2B, importing goods and services into the EU: Businesses importing goods or services from non-EU suppliers into the EU for use or resale need an EU VAT number to pay import VAT and report using the reverse charge mechanism, if qualified. This also allows them to reclaim the VAT later.
- E-commerce and digital services: Online retailers or digital service providers (e.g., software, streaming platforms) selling to EU consumers often need an EU VAT number. This is essential for compliance with VAT rules under the One-Stop Shop (OSS) scheme.
Insight
The EU differentiates how it treats resident and non-resident businesses for VAT purposes. You are considered a non-resident if your business is based in the UK (England, Scotland, or Wales).
Technically, there is no universal “EU VAT number.” As a non-resident business, you must register for VAT in the specific EU country where your consumers are located.
In contrast, resident businesses within the EU are subject to a €10,000 threshold for total cross-border sales across all member states. Once this threshold is exceeded, resident businesses must either register for VAT in each relevant country or opt into the One-Stop Shop (OSS) scheme to simplify their VAT compliance.
How do I get a VAT number?
To get a VAT number, you need to register for VAT. Then, you can apply to HMRC using your government gateway and password. If your business is based outside the UK but makes taxable supplies to the UK, you also need to register for VAT.
If, on the other hand, you do business in the EU from outside the Union, you need to identify your country of VAT registration and follow its protocols. Member State of Identification for OSS registration. Register through the tax authority’s online portal of your chosen member state.
How do I issue invoices using my VAT number in the EU?
A business in the EU must issue a VAT invoice when a taxable supply of goods or services occurs. There are also different types of invoices for different sought transactions and circumstances, as shown in the table below.
| Invoice Type | Purpose | Requirements |
|---|---|---|
| Full VAT Invoice | Also known as a standard invoice, it is used for B2B and higher-value B2C transactions where the customer will reclaim VAT. |
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| Simplified VAT Invoice | Used in low-value transactions typically cost less than €100. |
|
| Modified VAT Invoice | Modified to fit circumstances or industry requirements. |
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| Self-Billing Invoice | Customer issues the invoice on behalf of the supplier, typically authorised by contractual agreements. |
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| Pro Forma Invoice | A preliminary bill before shipment or delivery is not considered an official VAT invoice. |
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| Reverse Charge Invoice | Used for cross-border EU transactions or specific services where VAT liability shifts to the buyer. |
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| Intra-Community Supply Invoice | For goods sold between EU countries with no VAT charged due to cross-border transport. |
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| Margin Scheme Invoice | Applies to goods under special VAT schemes (e.g., second-hand goods, artwork) are taxed on the profit margin only. |
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What is the process of checking a VAT Number is valid?
The VIES (VAT Information Exchange System) is a tool created by the European Commission. It connects to national VAT databases to verify the validity of VAT numbers across the EU.
To validate an EU VAT number –
- Visit the VIES VAT number validation page
- Scroll to the validation section and select the Member State from the dropdown menu.
- Enter the VAT number you wish to validate.
- Optionally, provide details of the requester, which includes your member state and VAT number (this may be useful for record-keeping).
- Submit the query by clicking ‘Verify.’
A valid VAT number will display the associated EU VAT details, confirming it is recognised in the respective member state’s database. If the VAT number is invalid, the system will indicate that it is not recognised in any of the databases queried. This may mean the VAT number needs to be corrected, expired, or registered.
Find out more: How to check a UK VAT Number validity on GOV.UK and VIES
How do I check a UK VAT number is valid?
To verify a UK VAT number, visit https://www.gov.uk/check-uk-vat-number. Enter the VAT number you wish to check and indicate whether you want proof of verification. If you choose to obtain evidence, you must provide your VAT number to complete the process.
How do I calculate and file my VAT return with HMRC?
VAT is a consumption tax applied to the value added to goods or services at each stage of production or distribution. Businesses can reclaim the VAT charged on their purchases (input VAT) to offset the VAT collected on their sales (output VAT), ensuring they only pay VAT on the added value.
If you are not on the Flat Rate Scheme, follow these steps to calculate your VAT return:
- Calculate the total VAT collected from your sales (output VAT).
- Calculate the VAT paid on business-related purchases and expenses (input VAT).
- Subtract input VAT from output VAT:
- A positive result means you owe that amount to HMRC.
- A negative result means you are entitled to request a refund from HMRC.
Submit your VAT return using HMRC’s online portal or compatible accounting software. To avoid penalties, ensure the return and any payment due are completed by the deadline.
Find out more: UK Tax Year Dates and Filing Deadlines 2024
Do I need a VAT registration number to do business in the EU?
Your business’s location and activities depend on whether you need a VAT registration number.
If your business is based outside the EU, you must register for VAT within 30 days of making a taxable B2C sale within the EU. To handle compliance, you must typically appoint a fiscal representative, such as a tax advisor, accountant, auditor, or lawyer based in the EU.
You can also register for the VAT OSS Non-Union scheme, which simplifies compliance by allowing you to avoid registering in every EU country where you do business. However, the reverse charge mechanism may apply if your transactions involve VAT-registered companies. This shifts the responsibility for accounting for VAT to the buyer, meaning you may not need to register for VAT in such cases.
EU businesses must register for VAT in one or more member states if their total taxable sales across all EU countries exceed €10,000. This also applies if they are engaged in taxable B2C sales, regardless of the threshold.
Insight
The EU’s VAT One Stop Shop (OSS) scheme simplifies VAT compliance for B2C sales across the EU. It is divided into two parts:
- Union OSS
- Covers cross-border distance sales of goods within the EU for EU-established businesses.
- It may include domestic sales facilitated by online marketplaces like Amazon or eBay on behalf of non-EU sellers who do not directly use the Union OSS for these transactions. Instead, they typically rely on the Non-Union OSS for B2C services, while the marketplace collects and remits VAT on their behalf.
- EU businesses can include the following services in their OSS filings:
- Accommodation services
- Admission to events (e.g., cultural, artistic, sporting, educational, or entertainment)
- Intermediary services
- Passenger transport services
- Valuation and work on movable property
- Ancillary transport activities (e.g., loading or handling)
- Services related to immovable property
- Hiring of transport vehicles
- Telecommunications, broadcasting, and electronic services
- Onboard restaurant and catering services (ships, aircraft, or trains)
- Businesses register in one member state and use a single electronic portal to declare and pay VAT on all eligible sales across the EU, eliminating the need for multiple registrations.
- Non-Union OSS
- For non-EU businesses, also known as non-established taxable persons (NETPs) supplying services to EU consumers.
- Applies only to services, not goods (goods follow different VAT rules).
- Non-EU businesses can register in any EU member state as their “Member State of Identification” and file a single quarterly VAT return for all B2C services supplied within the EU, streamlining their tax obligations.
Both schemes aim to reduce the administrative burden and simplify cross-border VAT compliance.
See also: How to Get an EORI Number in the UK
How do I register for VAT identification number in EU countries?
Businesses required to register for an EU VAT identifier can choose from three registration regimes: the Union OSS, the Non-Union OSS, and the EU VAT Registration.
| Union OSS | Non-Union OSS | EU VAT Registration | |
|---|---|---|---|
| Eligibility | EU-established businesses selling B2C goods or services across EU member states | Non-EU businesses supplying taxable B2C services to EU consumers with no fixed establishment in the EU. | Any business (EU or non-EU) with a permanent establishment in the EU exceeding the €10,000 threshold for B2C goods sales across EU countries. |
| Requirements |
Business name and address Electronic contact details VAT identification number issued by the member state Details of goods and services offered |
Company name and address Electronic contact details Tax Identification Number UK and the domicile VAT number. Description of business activities |
Articles of association Proof of VAT registration in the domicile country Proof of business existence and identity from the National Registrar of Companies Proof of planned trade (e.g., invoices and contracts) Power of attorney or letter of authority if working with a fiscal representative. |
| Country of registration | Register in the member state where the business is domiciled. | Choose any preferred EU member state as the registration country (e.g., Ireland for ease of process). | Register in the EU country where the €10,000 threshold or local thresholds are exceeded. |
| Other Information |
Registration is completed electronically via the home member state’s tax portal. No new VAT number is issued; the existing VAT number is used for OSS filings. |
Registration provides a unique VAT identification number. Returns are submitted to the chosen member state. |
Registration requires filling out a local VAT form in the country’s language. Submit the form and documents online, by mail, or in person. |
