Most small business owners find VAT a tricky subject to fully grasp. Therefore they’re left feeling anxious and unsure if their company is required to become registered and how to go about registering if they are.
Well, don’t panic, as we’ve done all the legwork for you. Avoid getting a ‘VAT headache’ and keep reading to discover all the information which you will need to make an informed decision!
When should I register for VAT and do I have to?
A very common question asked by many small business owners is if they are actually required to register for VAT. So, let’s put this as simple as possible. According to GOV.UK if your turnover or total sales are more than £85,000 in a twelve month period, or if you’re expected to go over this threshold in a single 30 day period, then you must register for VAT!
Additionally, you must also register if you sell goods or services that are exempt from VAT or ‘out of scope, but you buy goods for more than £85,000 from EU VAT-registered supplies to use in your business. This is stated on the GOV.UK website.
It’s also worth noting that you may need to register for VAT if you take over a business that’s already registered, so make sure to look fully into the VAT history of the company you’re taking over if that’s the case.
Furthermore, there is no threshold if neither you or your business are based in the UK, but you must register as soon as you supply any goods or services to the UK or if you expect to do so in the next 30 days.
It’s important that you register within 30 days of your business turnover exceeding the threshold as if you register late then you will need to pay what you owe. Which isn’t an ideal position to be in.
What is voluntary registration and is it a good idea?
You must be thinking, why are some small business owners volunteering to pay VAT even though they are not over the threshold? Surely it would be more business savvy to not register?
Many firms volunteer to register for VAT before they reach the threshold. There are a few reasons why companies who are under the threshold volunteer to become VAT registered. For one, it can help to improve a company’s reputation and brand, as it suggests that the company is making sales of over £85,000. Therefore, smaller businesses can give the appearance of being bigger and more established, which may be particularly appealing to clients, lenders and investors.
Further advantages are that a VAT registered company can charge VAT on the goods and services it sells, known as output tax, and reclaim VAT that you’ve paid for goods and services bought from other businesses, known as input tax. Voluntary registration can also be backdated by up to 4 years if you provide the HMRC with the required evidence.
How do I register?
OK, so you’ve done your homework and you’ve come to the conclusion that you would like your company to become VAT registered. However, now you’re unsure on how to actually do this. Well, there are in fact a few different ways you can achieve this…
Most companies can become VAT registered online, which is simple enough to do. When you do this, you will register for VAT and create a VAT online account.
Alternatively, you can appoint an accountant (or agent) to submit your VAT Returns and deal with the HMRC on your behalf.
You must register by post if:
• You want to apply for ‘registration exception’;
• You’re an EU business ‘distance selling’ to the UK;
• You import goods from another EU country;
• You’re joining the Agricultural Flat Rate Scheme;
• You’re registering the diversions or business units of a body corporate under separate VAT numbers;
• You’re disposing of assets on which 8th or 13th Directive refunds have been claimed.
Once you’ve registered you will receive your VAT number from HMRC and can sign up for a VAT online account.
Potential disadvantages of registering
There can be downsides for registering for VAT, obviously, if your turnover is above the threshold then you will have no choice but if you’re contemplating voluntary registration then you may want to consider the potential disadvantages.
The extra paperwork can be viewed as a disadvantage, especially for a new business owner with very little time for admin.
Additionally, VAT could hamper the appeal of goods and services to customers who are not VAT registered. Businesses could end up with a large VAT bill from HMRC if they generate more VAT from goods and services sold than VAT paid on goods and services bought from other businesses.
What different VAT schemes are available?
If you’ve made the decision to register your company for VAT then you should be aware that there are several different schemes available. The three most popular schemes are:
The three most popular schemes are:
Cash Accounting Scheme – VAT is owed at the end of the quarter in which you were actually paid for the invoice.
Cash Accounting Scheme – VAT is owed at the end of the quarter in which you were actually paid for the invoice. Annual Accounting Scheme – For the Standard Scheme, the amount of VAT you owe is based on the date of the invoice. So, if you invoice someone, that VAT will be deemed to be owed to the HMRC at the end of the quarter in which you dated the invoice. As you can imagine, this can cause cashflow issues for some small companies.
Annual Accounting Scheme – For the Standard Scheme, the amount of VAT you owe is based on the date of the invoice. So, if you invoice someone, that VAT will be deemed to be owed to the HMRC at the end of the quarter in which you dated the invoice. As you can imagine, this can cause cashflow issues for some small companies.
Flat Rate Scheme – For some industries, this can save some companies a lot of money. You get given a certain flat percentage rate dependent on the industry that you are in. You then charge VAT at the usual rate but only pay the HMRC the flat-percentage. You can’t claim back any VAT on your purchases, with a few exceptions, but you don’t hand over all of the VAT which you receive to HMRC.
Can I cancel or transfer registration?
It is possible to transfer a VAT registration from one business to another, such as if you take over a company and want to keep using the same VAT number.
VAT is a tricky subject, but the main thing as a business owner is to understand if you’re required to become VAT registered and if so, how you then go about registering and which scheme would suit your business the best. If you’re not required because your company is under the threshold, consider whether registering anyway will improve your company image will outweigh the potential disadvantages.