Value-added tax (VAT) is a core part of doing business in the UK. If you run a company that buys and sells goods or services, VAT is likely to be on your radar. Although the fundamentals have stayed consistent for some time, there are details that may have changed for the current tax year. Below, we outline the standard rules, thresholds and what to watch in VAT in 2025. We also highlight how to stay compliant and handle potential trouble spots.
Introduction to VAT in 2025
At Alton & Co, we know that compliance with VAT rules can significantly affect a business’s finances. We have seen well-prepared businesses save time and cost by reviewing their internal processes and preparing well in advance for any updates. Our goal is to make these rules clear so that owners and finance teams can carry on with confidence.
Current VAT rules
VAT is charged on the sale of most goods and services in the UK. The standard rate is currently 20%. There are also reduced rates (such as 5% for some goods) and zero rates (0% on items like basic groceries). To stay compliant, businesses must track which rate applies to their products or services.
Many businesses reclaim VAT on goods and services they buy, provided they keep proper records and follow the rules set by HM Revenue & Customs (HMRC). This means maintaining a clear separation of private and business expenses and keeping invoices and receipts up to date. If your business is VAT-registered, you must submit periodic VAT returns – usually quarterly, although some use monthly or annual filing schedules.
VAT registration threshold
The VAT registration threshold is still set at £90,000 for the current tax year. If your taxable turnover exceeds £90,000 in any rolling 12-month period, you must register for VAT. Even if your turnover is below this amount, you can choose to register voluntarily. This is sometimes beneficial if you have sizeable VAT to claim back on major expenses.
According to HMRC statistics, voluntary registration is a route taken by thousands of businesses each year. Some opt in to bolster their professional image or manage their supply chain more efficiently. If you are unsure whether registering voluntarily is right for you, it can help to run the numbers and assess how VAT might impact your business’s cashflow.
Updates to be aware of for 2025
While the core VAT rules have not changed drastically, it is worth noting any announcements in upcoming Budgets. If you are forecasting beyond the current tax year, take the time to monitor HMRC updates in case of adjustments to VAT rates or possible new schemes. We often advise our clients to set reminders to check for announcements around the time of the Autumn Statement.
Another point to watch is how broader changes in the economy could affect your eligibility for certain reliefs or schemes. For example, if you have been using the Flat Rate Scheme, you may want to review whether this continues to be cost-effective. Changes in your turnover or business activities might mean you are better off using a traditional VAT accounting method, or vice versa.
Making Tax Digital
Making Tax Digital (MTD) for VAT is now a core requirement for most VAT-registered businesses. Although MTD for VAT became mandatory for all VAT-registered entities in 2022, we still see many businesses dealing with errors in digital record-keeping. Errors can happen when data is entered manually and not double-checked.
If you are looking ahead to 2025, double-check your MTD software is up to date and meets HMRC’s requirements. Some businesses rely on bridging software – tools that link spreadsheets to HMRC’s MTD system. This can work fine, but it pays to ensure any bridging software is secure and properly integrated with your internal processes. We encourage periodic testing of your system, especially before filing deadlines, to spot any potential issues well before returns are due.
Common pitfalls
- Poor record-keeping
One of the most frequent errors is incomplete records. This includes missing invoices, mishandled receipts or incorrect data entry. HMRC can issue penalties for inaccuracies, so it is worth having a system that captures all transactions as soon as they happen. Even small issues can lead to bigger corrections in the future. - Confusion over VAT rates
Some goods and services fall under multiple rates if they meet certain conditions. For instance, a single product might have both standard-rated and zero-rated elements. A good example might be food with an eat-in or takeaway element. We recommend checking HMRC guidance on borderline cases and, if unsure, seeking advice. - Late registration
If you pass the £90,000 threshold, you must register promptly. Delays can mean late-filing penalties and an unexpected tax bill for the period during which you should have been registered. Monitoring your rolling 12-month turnover is vital, especially if your business grows in short bursts or seasonally. - Missing VAT filing deadlines
Late VAT returns can lead to fines and surcharges. Many businesses now use digital alerts or calendar reminders for all VAT deadlines. If you leave filing to the last minute, small errors can creep in, so it is wise to schedule time for review before submissions. - Mixing business and personal expenses
Where owners occasionally use business accounts for personal purchases, or vice versa, it can cause confusion. Splitting out VAT correctly on shared expenses can be tricky. If you suspect you might be mixing expenses, we recommend keeping separate credit cards and accounts. This is a straightforward measure but can save considerable time.
Practical steps for compliance
- Audit your processes
We see the best results when businesses perform a regular audit of their VAT procedures. If you are uncertain, an external review can help pinpoint any errors in how you calculate or reclaim VAT. An annual check also acts as an opportunity to refresh staff training. - Stay informed
Check HMRC’s official sources for any changes that might come in during the next financial year. The government sometimes announces new schemes or modifies existing ones, so staying informed will help you act quickly. - Embrace digital
MTD has already changed how businesses keep records. If you have not yet gone fully digital, it is worth investing in software that links your transactions, invoicing and VAT returns. The initial cost tends to be outweighed by saved administrative time, fewer mistakes and better data insights. - Engage with an adviser
Although some tasks can be managed in-house, there are times when a professional eye can make a difference. We can assist with registering for VAT, switching accounting schemes or claiming refunds. Regular check-ins with an adviser can help your business avoid unexpected bills or penalties.
Final thoughts
VAT can feel like a chore, but it is part of everyday trade in the UK. By staying organised, keeping tabs on changes and using the right tools, most businesses can manage VAT with less stress. Preparation, accurate record-keeping and a willingness to review your approach will keep you in good stead for the rest of the current tax year and beyond.
If you have questions about VAT or would like to discuss how we can help, our team at Alton & Co is ready to assist. We look forward to helping you meet your obligations and stay focused on what you do best.
Do you have any questions about VAT in 2025? Contact us today.