Key things to know for the VAT application
You can register for UK VAT online or by post. For some types of businesses, including online sellers, you will receive a second questionnaire to complete within 7 days of applying asking for additional information.
We have summarised the key points you will need to know before starting your VAT application.
Which VAT scheme should I select?
Usually, Standard scheme applies for most ecommerce businesses.
First check: automatic tests for the Standard Scheme
If any of the below apply to you, then the Standard scheme is right for you and you can skip the rest of this question:
- Your actual or expected 12 month turnover is greater than £150,000
- You sell mainly zero-rated goods like books, kids clothing, perishable foods, etc. (link to HMRC full list of zero-rated goods)
- Your average profit margin on sales is at or below 45%
Note: c. 95% of businesses will choose the Standard scheme.
Second check: is there benefit on the Flat Rate scheme?
If none of the above apply, then the Flat Rate may make sense, typically for certain high-margin businesses (the breakeven point is where margin is greater than 45% / a markup of 82%). However, additional restrictions and rules apply for Flat Rate. Review the information in this Flat v Standard post and see if the Flat Rate scheme would benefit you.
If in doubt, select the Standard scheme, which is usually the more economical choice and once grow in size, you may no longer be eligible for the Flat Rate VAT scheme.
Annual or quarterly frequency?
We recommend quarterly.
On both schemes, you make quarterly payments. We do quarterly bookkeeping for you because VAT issues are simpler to resolve when we deal with transactions that are at most 3 months old. Additionally, on the annual scheme, you cannot reclaim VAT until the end of the year if your revenue falls relative to the estimated revenue on which your VAT payments are based.
Which VAT quarters should I select?
We recommend aligning the VAT quarters with your year-end because this will make your bookkeeping and accounting processes aligned, which makes things a bit more efficient. You will be offered the following quarterly schedules:
- MA – Quarterly (last day of January, April, July and October)
- MB – Quarterly (last day of February, May, August and November)
- MC – Quarterly (last day of March, June, September and December)
So, if your year-end is December, choose 'MC'.
How long will it take to get my VAT number?
Expected turnaround is c. 30 days from HMRC receiving your form, however, current turnaround times for applications are 8+ weeks. If you apply online, your expected turnaround is c. 10 calendar days quicker, but beware that this option is only open for certain businesses.
If you are an online seller, HMRC will send you a follow-up questionnaire, which can extend this timeline further.
What documents do I need to provide?
As part of the application, an individual with signing authority for the business needs to be identified to HMRC. If you have a UK National Insurance number, you will supply this along with your contact details, and this will be sufficient for HMRC to identify you in most cases.
If you do not have a UK National Insurance Number, you will need to supply a photo proof of ID and two supporting address documents, such as a utility bill or bank statement from the last three months. These documents need to be in English.
For the follow-up questionnaire for online sellers, you will need to provide proof of your operational setup which includes how you store or ship goods to the UK, details about the marketplaces you sell on, and evidence of supplier relationships.
How to apply for UK VAT
You can apply online and by post. In both cases, a tax agent, usually this would be your accountant, can do this for you.
How do I apply online?
This recommended in two circumstances only, because in practice, this option is not available to everyone. Whether you are able to submit is only revealed at the end of the application, so there is a real risk of wasted time when considering this option.
The two circumstances where it may make sense to attempt an online application:
- If you are a UK business and the representative for the business has a UK National Insurance number, then you are likely to be able to use this option. It is not guaranteed, but we would estimate close to 75% of applicants are successful using this approach.
- If there is urgency in getting a VAT number. In this case, you may wish to check if this option is available to you, accepting the risk of potentially wasting your time if you are presented with the screen above at the end.
To register online, visit HMRC VAT registration page.
How to apply by post using the VAT1 form
For most businesses, the most straight-forward way to register is by completing HMRC's VAT1 and submitting it by post.
The easiest way is to have your accountant complete this for you as your agent, and they will point you to the specific parts of the form that you need to provide information for, and they will apply as your agent and handle the correspondence.
If you want to do so yourself, you can visit HMRC's VAT1 form page and download the form and associated guidance notes. Most of the questions are simple, if read alongside the guidance, and the points which are not obvious are addressed in the common questions section above.
Getting help with handling your VAT application
If you would like an expert in VAT for ecommerce businesses, get in touch. We would be happy to handle your VAT affairs for you, both in the UK and in the EU.