A limited company does not have to be VAT registered by virtue of being a company. It has to register when its taxable turnover passes the £90,000 threshold, per gov.uk, exactly as a sole trader does, and below that it may register voluntarily if the arithmetic suits it. The question directors actually have is usually one of three: whether the company has crossed the line, how to register it and what that costs, and what the penalty is for having crossed it and not noticed. This page answers those in order, then sets VAT beside corporation tax, because the two are collected by the same department on different rules and the confusion between them is the most common VAT mistake a small company makes.
Compulsory vat registration: when the answer is yes
When taxable turnover over the last twelve months goes over £90,000, or is expected to in the next thirty days, per gov.uk, the company must register, from the first day of the second month after the month it crossed the threshold or from the date of the expectation. The company also has to register regardless of turnover if it is based outside the UK and supplies goods or services to the UK. Below the threshold the choice is the company's: registering lets it reclaim VAT on purchases and looks established to business customers, and costs it a quarterly return and, if it sells to the public, 20 percent on its prices.
How to register a limited company for vat, and what it costs
Online through the company's Government Gateway account: the company's UTR, registration number, bank details, turnover figures and the nature of the business, with an effective date. HMRC charges nothing for registration, so the answer to how much does it cost to register for vat is nothing paid to HMRC; an accountant or agent will charge for doing it, and the running cost is the quarterly return under Making Tax Digital and compatible software to file it. The VAT number arrives by post and online, and until it does the company charges the VAT-inclusive price without showing VAT on the invoice, then reissues once the number is known.
Late vat registration and the penalty
A company that registers late owes the VAT on its taxable sales from the date it should have registered, whether or not it charged its customers, and a penalty on top calculated as a percentage of that VAT, rising with how late the registration is. HMRC applies its failure to notify penalty regime, with the percentage reduced for an unprompted disclosure and for cooperation, and interest at 7.75 percent from 9 January 2026 per gov.uk on the late paid tax. The practical cost is usually the unrecoverable VAT on sales already invoiced to consumers, which is why the rolling monthly check on the VAT threshold page on this site is the cheaper habit.
Corporation tax and vat, side by side
Corporation tax is charged on the company's profit for its accounting period, once a year, at 19 percent, 25 percent or the marginal rate between, per gov.uk. VAT is charged on the company's sales and reclaimed on its purchases, quarterly, and once registered it is neither income nor cost to the company: the accounts and the corporation tax computation are stated net of it. Before registration, VAT paid on purchases is simply part of the cost and deductible for corporation tax. A vat limited company therefore keeps two calendars and two sets of figures, and the corporation tax one is the one the free calculators on this site work.
Questions people ask about does a limited company have to be vat registered
Should a company below the threshold register voluntarily?
If its customers are VAT registered businesses and it has VAT on its purchases to reclaim, often yes; if it sells to the public and buys little, usually no. It is a sum on the company's own numbers, and the flat rate scheme changes it again for a company with few purchases.
Can a limited company deregister later?
Yes, if its taxable turnover falls below the deregistration threshold, which sits below the registration one, or if it stops making taxable supplies. Deregistration is applied for and takes effect from a date HMRC confirms, and VAT on stock and assets held may be due on leaving.
Does VAT registration change the corporation tax the company pays?
Not directly. Once registered the company's sales and costs are stated net of VAT, so the profit is the same as it would have been on net figures before. What changes is cash flow, since VAT collected is held for the quarter before it is paid over.