UK VAT & Making Tax Digital

You must register for UK VAT once your VAT-taxable turnover crosses £90,000 in any rolling 12-month period — this is the threshold from 1 April 2024 (previously £85,000). You also have to register if you expect to cross the threshold in the next 30 days alone (a one-off large contract, for example).

You can register voluntarily below the threshold. Most businesses do this when their input VAT — VAT on the things they buy — would otherwise be a real cost, and the benefit of recovering it outweighs the admin overhead of returns.

• 20% — the standard rate for most goods and services.
• 5% — the reduced rate (domestic fuel and power, energy-saving materials, children's car seats, mobility aids for the elderly).
• 0% — zero-rated (most food, books and newspapers, children's clothing, public transport, exports outside the UK).
• Exempt — financial services, insurance, education, health. No VAT charged and no input VAT recoverable on related costs.

The distinction between zero-rated and exempt matters: zero-rated supplies count toward your turnover for registration and let you reclaim input VAT; exempt supplies do not. Partial-exemption rules apply if you make both kinds.

HMRC offers four main schemes; HelloBooks supports all of them and you can switch at the start of a return period.

• Standard accrual — the default. VAT is accounted for when the invoice is issued, not when paid. Best for businesses paid quickly.
• Cash accounting — VAT is only paid when your customer pays you (and reclaimed when you pay your supplier). Eligibility cap: £1.35M turnover. Best when customers take 60+ days to pay.
• Annual accounting — one return per year with nine interim payments. Eligibility cap: £1.35M turnover. Best for businesses with very stable turnover that want fewer filings.
• Flat rate scheme — apply a fixed percentage (industry-specific, 4%–14.5%) to your VAT-inclusive turnover. No input VAT recovery (except on capital assets over £2,000). Eligibility cap: £150K turnover. Best when input VAT is low (consultants, freelancers, service businesses).

Making Tax Digital (MTD) has been mandatory for every VAT-registered business since 1 April 2022, no matter how small. It requires two things:

• Keep your VAT records digitally in MTD-compatible software.
• Submit returns through HMRC's MTD API with an unbroken digital link from source record to the figures on the return.

The "digital link" is the crucial bit: HMRC will not accept a spreadsheet that you manually re-key into another system. Every piece of data has to flow electronically from one place to the next. HelloBooks is built around this — from invoice line item to tax code to box 1 of the return, there is no manual hop.

1. You authorise HelloBooks against your HMRC government gateway once. The platform pulls your VAT number, scheme, and current obligation periods.
2. Every invoice and bill carries a VAT code (20%, 5%, 0%, exempt, reverse-charge, or PVA) — set automatically from the item and the customer / supplier's country, overridable per line.
3. At return-period close, HelloBooks computes boxes 1–9, lets you drill into every figure, and shows the digital-link chain back to source records.
4. You submit through the HMRC MTD API directly from HelloBooks. The receipt token from HMRC is stored on the return.
5. Errors under the £10,000 / 1%-of-box-6 threshold are adjusted on the next return automatically; larger errors are flagged for a separate error notification.