UK VAT Setup Checklist 2026: Step-by-Step Guide

You’ve crossed £90,000 in rolling 12-month turnover. The clock is ticking — you have 30 days from the end of the month you crossed the threshold to register. Here’s everything you need to do, in order.

Step 1: Register for VAT with HMRC

Time needed: 30 minutes. Deadline: 30 days from the end of the month you exceeded £90,000.

1. Go to gov.uk/register-for-vat
2. Sign in with your Government Gateway ID (or create one)
3. Have ready: your business details, bank account info, and turnover figures for the last 12 months
4. Submit the application

HMRC processes registrations in 10–14 working days. You’ll receive your VAT number (GB + 9 digits) and your effective date of registration — this is the date from which you must charge VAT.

Don’t wait for your VAT number to arrive before doing the next steps. You can prepare everything now and switch it on the day you receive it.

Step 2: Choose Your VAT Scheme

You pick this during registration. Two options:

	Standard Accounting	Flat Rate Scheme
How it works	Charge actual VAT on sales, reclaim VAT on purchases	Pay a fixed % of turnover to HMRC
Best for	Businesses with high costs (materials, shipping, equipment)	Businesses with low costs
Input VAT reclaim	Yes — on all business purchases	No — except capital assets over £2,000
Eligibility	Everyone	Taxable turnover under £150,000
Complexity	Track VAT on every purchase	Simpler — one percentage calculation

If you sell physical products and buy materials regularly, choose Standard. You’ll reclaim more in input VAT than you’d save on the Flat Rate Scheme. You can switch later but it’s a hassle.

Step 3: Decide Your Pricing Strategy

Before touching your store, decide this: are you absorbing the VAT or passing it on?

Option A — Keep prices the same (absorb VAT). Your £24 hat stays £24. But now £4 of that goes to HMRC, so you only keep £20. Your revenue per item drops 16.7%. This is what most B2C sellers do because raising prices overnight loses customers.

Option B — Add VAT on top. Your £24 hat becomes £28.80. You keep £24, HMRC gets £4.80. Your margins stay the same but your prices jump. Works better for B2B where buyers reclaim the VAT anyway.

Option C — Split the difference. Raise prices slightly (£24 → £26) and absorb the rest. A compromise.

Pick one. Write it down. Apply it consistently across all channels.

Step 4: Set Up VAT in Your Store

How you configure VAT depends on your selling platform. Find your platform below:

• Shopify — Built-in VAT calculation and tax-inclusive pricing. The fastest setup.
• WooCommerce — Manual tax configuration with plugin support for invoicing and EU VAT.
• BigCommerce — Tax zones and built-in multi-currency support.
• Etsy — Etsy collects VAT for you, but your sales still count toward the threshold.
• Instagram — No built-in tax handling. Use Shopify draft orders for compliance.
• Facebook — Depends on whether you use native checkout or redirect to your store.
• TikTok Shop — TikTok collects VAT on marketplace orders, similar to Etsy.
• Custom-built store — Full control, full responsibility. Consider a tax API.

Selling on multiple platforms? Set up VAT on each one. All sales across all channels count as one business for threshold purposes.

Step 5: Set Up Invoicing

For B2C sales (consumers)

For orders £250 or less, your platform’s order confirmation email is usually sufficient as a simplified receipt — but check it includes:

• Your business name and address
• Your VAT registration number
• The date
• Description of goods
• The VAT rate
• Total including VAT

For B2B sales (businesses)

You need full VAT invoices. Your invoice must include:

• Unique sequential invoice number
• Invoice date
• Your business name, address, and VAT number
• Buyer’s name and address
• Buyer’s VAT number (if provided)
• Description, quantity, and unit price per item
• VAT rate per line
• Net amount, VAT amount, and gross total

Use accounting software (Xero, QuickBooks, FreeAgent) — they generate compliant invoices automatically and you’ll need the software for filing anyway (see Step 6).

Step 6: Get MTD-Compatible Software

You cannot file VAT returns on the HMRC website. You must use Making Tax Digital (MTD) compatible software. Pick one from the options below, or see the full list of HMRC-approved MTD software.

Software	Monthly Cost	Best For
FreeAgent	£19–35	Freelancers and sole traders
Xero	£15–40	Small businesses, good Shopify integration
QuickBooks	£12–35	Cheapest option, solid basics
HMRC free software	Free	Very simple businesses, limited features

Once you’ve picked one:

1. Connect it to HMRC via your Government Gateway credentials
2. Connect it to your store (Shopify/WooCommerce/etc.) so sales data flows in automatically
3. Set up your bank feed so purchases are tracked
4. Start categorising transactions — the software needs to know which purchases include reclaimable VAT

Step 7: Start Collecting Supplier VAT Invoices

From your effective date of registration, every business purchase you make is a chance to reclaim VAT. You need the VAT invoice from the supplier to do this.

Start saving invoices for:

• Raw materials and stock
• Packaging and shipping supplies
• Platform subscription fees (Shopify, WooCommerce hosting)
• Postage and courier charges
• Business equipment (laptop, phone, printer)
• Professional services (accountant, designer, photographer)
• Business portion of phone and internet bills

No VAT invoice = no reclaim. A generic receipt isn’t enough — it must show the supplier’s VAT number and a VAT breakdown. Ask suppliers for a proper VAT invoice if they don’t provide one automatically.

Step 8: File Your First VAT Return

Your first return is due 1 month and 7 days after the end of your first VAT quarter. HMRC assigns your quarters when you register.

Quarter	Period	Deadline
Q1	January – March	7 May
Q2	April – June	7 August
Q3	July – September	7 November
Q4	October – December	7 February

Your MTD software compiles the return automatically from your sales and purchase data. Review it, check the numbers look right, submit, and pay. The return shows:

• Output VAT — what you charged customers
• Input VAT — what you paid on business costs
• The difference — what you owe HMRC (or what they refund you)

Set a calendar reminder 2 weeks before each deadline. Late filing = penalty points. Late payment = interest + fines.

Quick Summary

Step	What	When
1	Register for VAT at gov.uk	Within 30 days of crossing £90k
2	Choose Standard or Flat Rate Scheme	During registration
3	Decide pricing strategy	Before touching your store
4	Configure VAT in your store platform	Before your effective date
5	Set up compliant invoicing	Before your effective date
6	Get MTD software and connect to HMRC	Within first month
7	Start collecting supplier VAT invoices	Immediately
8	File first VAT return	1 month + 7 days after quarter end

What’s Next

• Selling to the EU? You need IOSS — read the EU guide
• Want to understand VAT rates in detail? See UK VAT rates
• Need to check a supplier’s VAT number? Use our free checker