As Technology Businesses Grow, Their VAT Position Rarely Stays the Same
New revenue models, international expansion, investment and changes to group structures can all introduce VAT considerations that aren't immediately obvious.
Considering VAT as part of the planning process can help avoid unexpected costs and ensure your business is well positioned for its next stage of growth. If VAT is only considered after decisions have been made, this can leave your business exposed to unnecessary risk.
Whether you're preparing for launch, scaling following investment or expanding into new markets, taking advice at the right time can help ensure your VAT position keeps pace with your business.
VAT Implications of Changing Revenue Models
Many technology businesses begin with a single product or service and a straightforward source of income. As the business grows, that often changes.
You may introduce SaaS subscriptions, software licensing, APIs, platform or marketplace revenues, implementation services, data products or entirely new service lines. You may also begin selling to customers in new territories.
While these may all contribute to revenue, they may not all receive the same VAT treatment. Income may be taxable, zero-rated, exempt or outside the scope of UK VAT, depending on what you're supplying and who you're supplying it to.
Understanding how new revenue streams fit into your overall VAT position can help avoid unexpected issues as your business scales.
How Revenue Changes Can Affect VAT Recovery
Not all income has the same impact on the VAT you recover.
If your business begins generating exempt income alongside taxable income, this can affect how much VAT you're able to recover on costs such as software, professional advisers, recruitment, product development and overheads through the partial exemption rules.
For businesses investing heavily ahead of commercialisation, this can become a significant cost if it isn't identified early.
If these issues aren't identified early, businesses may recover too much VAT and later need to repay it to HMRC, potentially with interest, or recover too little and miss out on valuable cash flow.
Reviewing your anticipated revenue mix before launch can help identify potential VAT recovery issues while there is still time to plan.
International Expansion and VAT
Many technology businesses expand internationally sooner than expected. Whether you're selling SaaS, digital services or licensing intellectual property, overseas customers can introduce VAT obligations that aren't always obvious.
The VAT treatment of overseas sales depends on where your customer is established, whether you're supplying a business (B2B) or a consumer (B2C), and the nature of the services being supplied. These factors determine whether UK VAT applies, where VAT is due and whether overseas VAT (or equivalent GST or sales tax) registrations, or even a UK VAT registration for an overseas group company, may be required.
Understanding these obligations before entering a new market or changing your operating model can help avoid unnecessary complexity as your business grows.
VAT Considerations When Your Group Structure Changes
As businesses grow, operating structures often evolve too.
New holding companies, overseas parent entities or changes to which group company contracts with customers can all create new VAT considerations. Changes to intellectual property ownership, licensing arrangements and intra-group services can also affect your VAT position.
Reviewing these arrangements before they are implemented is often far simpler than resolving VAT issues retrospectively.
Preparing for Investment or Due Diligence
For many technology businesses, fundraising is a significant milestone. Whether you're raising seed funding or preparing for a larger investment round, VAT is one of many areas investors and due diligence teams may review.
Historic VAT treatments, overseas registration obligations and VAT recovery are all areas that can attract attention during due diligence. Identifying and addressing any issues before a funding round can help avoid unnecessary delays, reduce risk and give investors greater confidence in the financial position of the business.
Reviewing your VAT position ahead of investment also provides an opportunity to ensure your operating model, group structure and international expansion plans remain tax efficient as your business continues to scale.
Planning Ahead
Involving VAT advisers early in key commercial decisions can help identify opportunities, reduce risk and avoid unnecessary costs, whether you're preparing for launch, expanding internationally, restructuring following investment or preparing for your next funding round.
Our teams at Onside Accounting and Onside Tax work with founder-led, VC-backed and high-growth technology businesses throughout their growth journey. We understand the commercial realities of scaling a technology business and work alongside management teams to assess the VAT implications of strategic decisions before they're implemented.
Taking advice early can often improve VAT recovery, identify registration requirements and help avoid issues that are more difficult to resolve once commercial decisions have been implemented.
If you're planning your next stage of growth, Onside will be delighted to discuss how we can help.
________________________________________
FAQs
When should a business review its VAT position?
It's worth reviewing your VAT position before introducing new revenue streams, expanding internationally, restructuring your group, launching new products or services, or preparing for investment. Considering VAT early can help identify risks and opportunities before commercial decisions are implemented.
Does SaaS always attract UK VAT?
Not necessarily. The VAT treatment depends on the nature of the services being supplied, where your customer is established and whether you're supplying a business (B2B) or a consumer (B2C).
Can expanding internationally create VAT obligations?
Yes. Selling overseas may create VAT, GST or sales tax registration requirements depending on where your customers are located, the type of services you provide and whether you're supplying businesses or consumers. Understanding these obligations early can help avoid unexpected compliance requirements as your business scales.
Can changes to our revenue model affect the VAT we recover?
Yes. Introducing exempt income alongside taxable income can affect how much VAT your business is able to recover on overheads and other costs through the partial exemption rules. Reviewing changes to your revenue model early can help avoid unexpected VAT costs and improve cash flow as your business scales.
Should we review our VAT position before raising investment?
For many businesses, yes.
Investors and due diligence teams will often review tax compliance, including VAT registrations, historic VAT treatments and any areas of potential risk.
For businesses with more complex operating models, obtaining VAT advice before entering a funding round can be particularly valuable. It demonstrates that key VAT considerations have been assessed as the business has scaled, helping reduce uncertainty during due diligence and giving investors greater confidence that the business is investment-ready.
Where issues are identified, they're usually far easier to address before due diligence begins than once a transaction is underway.
Written by Hannah Gillan, Senior Client Director, Onside Accounting
Last technical review: July 2026
