VAT is one of the things all businesses need to be aware of. It’s important, for example, to understand what the VAT threshold is and when you need to register for VAT.
It’s also important to consider what benefits you might get from registering even if you are below the threshold.
Also you need to know who can not register for VAT.
What is VAT
Value Added Tax – the amount of tax added to the value of goods or services you buy. All VAT registered businesses must charge VAT on the goods or services they provide in the UK.
When you register, you’ll be sent a VAT registration certificate. This confirms:
- your VAT number
- when to submit your first VAT Return and payment
- your ‘effective date of registration’ - this depends on the date you went over the threshold, or is the date you asked to register if it was voluntary
From your effective date of registration you must:
- charge the right amount of VAT
- pay any VAT due to HMRC
- submit VAT Returns
- keep VAT records and a VAT account
You can also reclaim the VAT you’ve paid on certain purchases made before you registered.
You must register for VAT if your VAT taxable turnover goes over £85,000 (the ‘threshold’), or you know that it will. Your VAT taxable turnover is the total of everything sold that is not VAT exempt.
You can also register voluntarily.
Compulsory VAT registration
- You must register for VAT if:
- you expect your VAT taxable turnover to be more than £85,000 in the next 30-day period,
- your business had a VAT taxable turnover of more than £85,000 over the last 12 months.
You might also need to register in some other cases, depending on the kinds of goods or services you sell and where you sell them.
- You’ll need to register if you only 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 suppliers to use in your business.
- You may have to register for VAT if you take over a business that’s already registered.
- There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect).
- If you're an EU business involved in distance selling to customers in the UK and the value of your distance sales exceeds £70,000 in a year, you have to register for UK VAT.
- Separate rules apply to businesses using an online marketplace to sell goods in the UK, where those goods are in the UK at the point of sale or sold to a UK customer and then imported in the UK by the seller.
Once you know you’re liable to register for VAT, it’s important to let HMRC know straightaway. You may get a penalty depending on how much you owe and how late your registration is.
Voluntary VAT registration
You can register voluntarily if your business turnover is below £85,000.
Why would I do that?
There are few reasons why you would voluntarily register:
- Reclaim VAT
The main advantages is that you can reclaim VAT on most goods or services you buy for your business.
- Service VAT-registered businesses
If the clients you service are mainly VAT-registered then it’s worth becoming one too. Your clients won’t see the VAT as an administrative chore as they will be in the habit of claiming back the VAT.
- Access the flat rate VAT scheme
If your business has a low level of outgoings, you may stand to benefit financially from becoming VAT-registered, and in particular take advantage of the flat rate VAT scheme.
- Zero-rated goods from EU
If you buy goods and services from the EU country to use in your business will be ‘zero-rated’ (meaning no VAT is payable).
- Increase credibility
You can earn credibility to customers. If you’re not registered for VAT, other companies will know that your turnover is below a certain level and they may choose to make assumptions about your business based on that.
- Ready for growth
By registering for VAT, you’ll avoid having to watch out for the threshold and it sets the tone that your business is braced to expand.
When should I not register voluntarily?
It’s not worth registering if you’re providing goods and services to customer who can’t reclaim the VAT. By charging VAT you needlessly increase your prices by 20 percent.
More information about VAT, you can find on GOV.UK.