Do You Need to Register for VAT When Setting Up a New Limited Company?

One of the most common questions when setting up a new limited company is whether to register for VAT immediately. The answer depends on your expected turnover, who your customers are, and what happened with any previous trading activity. Here is how to think through the decision.

The VAT Registration Threshold

A UK business must register for VAT once its taxable turnover exceeds £90,000 in any rolling 12-month period (2024–25 threshold). Registration is also required if you expect to exceed the threshold in the next 30 days alone.

Below £90,000, VAT registration is optional — you can register voluntarily if it makes commercial sense, but you are not legally required to.

What Happens When You Incorporate a New Company?

A limited company is a separate legal entity from its owners and from any sole trader business they previously ran. When you stop trading as a sole trader and begin trading through a new limited company, the company starts counting its turnover from zero.

The sole trader's historic turnover is not transferred to the company. This means even if you were close to the VAT threshold as a sole trader, the new company has its own clean threshold to work through.

Provided the sole trader was below the £90,000 threshold and is ceasing to trade, there is typically no obligation to register the new company for VAT immediately. VAT registration can follow once the company's own turnover approaches the threshold.

When Voluntary VAT Registration Makes Sense

Even below the threshold, some businesses benefit from registering voluntarily:

You sell primarily to VAT-registered businesses — your customers can reclaim the VAT you charge, so adding VAT does not make you more expensive to them. Meanwhile you can reclaim VAT on your own purchases.
You have significant VAT-bearing costs — startup costs, equipment, stock purchases, professional fees. Registering early lets you reclaim input VAT on these.
You want to appear more established — a VAT number can signal that a business has reasonable turnover and has been trading for some time.

When to Wait

If your customers are private individuals who cannot reclaim VAT, adding 20% to your prices makes you more expensive relative to non-VAT-registered competitors. In this case, delaying registration until it is mandatory is usually the right call.

Similarly, if your turnover will build gradually and you expect to be below the threshold for the first year or more, the additional administration of quarterly VAT returns may not be worth taking on before it is required.

PAYE — a Separate Registration

VAT registration and PAYE registration are separate processes. If you plan to pay yourself a salary through the company — even a small one to maintain state pension qualifying years — you need to register for PAYE with HMRC and run a payroll. This can be done after incorporation, when you are ready to start paying wages.

Frequently Asked Questions

Q: I was VAT-registered as a sole trader — does my new company inherit that registration? A: No. A limited company is a separate legal entity. Your sole trader VAT registration covers the sole trader, not the company. The company needs its own VAT registration when required. You should deregister the sole trader if it has ceased trading.

Q: What if my company turnover grows faster than expected and I miss the registration deadline? A: If your turnover crosses £90,000 and you do not register within 30 days of the end of the month in which you crossed the threshold, HMRC can assess VAT from the date you should have registered — including on sales you did not charge VAT on. You would then owe HMRC 1/6 of your turnover for that period. Monitor your rolling 12-month turnover regularly to avoid this.

Q: Can my accountant handle the VAT registration when the time comes? A: Yes — and it is advisable to do so. The registration process involves choosing your VAT accounting scheme, your effective date of registration, and confirming which supplies are taxable. For more on how VAT applies to what you sell, see our guides on VAT on goods and VAT on services. Getting these details right at registration avoids complications later.

Not sure whether to register for VAT now or later? Contact Liberate Accountants for a free consultation, or learn more about our company registration service.