Should I register for VAT?
What is the value added tax (VAT) threshold?
In the United Kingdom, the VAT registration threshold is currently set at £85,000. If the annual revenue of your company surpasses this amount, you must register for VAT. You may be fined if you do not comply within 30 days.
It’s critical to keep in mind that this figure is subject to change. The VAT exemption level for 2016 was £83,000, up from £77,000 in 2012 and £64,000 in 2007. So that you’re up to date, you should check what the threshold is for each financial year.
You can track your sales with accounting software and set up an alert to notify you when you’re approaching the VAT threshold.
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It’s also worth noting that this figure is based on a rolling 12-month basis (the last 12 months from any given moment) rather than a calendar year’s turnover.
Remember that VAT may be extremely perplexing, so if you have any questions about it or how it affects your business, you should contact HMRC or get guidance from a VAT accountant UK.
When should you register for VAT?
When the following conditions are met, VAT registration becomes mandatory:
- In the following 30 days, you estimate your VAT taxable turnover to exceed £85,000
- Over the last 12 months, your business had a VAT taxable turnover of more than £85,000
Remember that they are computed on a rolling basis, so reviewing your taxes once a year to see if you’ve surpassed the threshold isn’t enough. You must keep track of your rolling 30-day and 12-month periods on a regular basis and register on time.
What are the advantages of VAT registration?
Clearly, if your firm exceeds the VAT threshold, you must register for VAT in order to comply with the law. However, VAT isn’t just a concern for larger companies, and it’s important to assess the benefits and drawbacks.
On the plus side, registering for VAT allows you to:
- When you pay for goods and services, you can reclaim any VAT you are charged. The VAT you pay, referred to as ‘input tax,’ may be higher than the VAT you collect from your customers, referred to as ‘output tax.’ You can get the difference back from HMRC if your input tax is higher than your output tax, saving you money.
- You’re ready to advance. By registering for VAT, you’ll avoid needing to keep an eye on the threshold, and it’ll send the message that your company is ready to grow. By registering, you can also gain respect and recognition. Other companies will know that your turnover is below a specific threshold if you aren’t registered for VAT, and they may make assumptions about your business based on that.
On the other hand, you might:
- You end up having to pay more to HMRC. This is the case if your ‘output tax’ exceeds your ‘input tax,’ which is the inverse of the scenario described above.
- I’ll have to devote more time to paperwork. VAT is a tax that businesses collect on behalf of the government, and you’ll have to file a return, which will add to your workload. (This is where accounting software can come in handy.)
- Customers must pay greater pricing, especially if you interact with the general public rather than VAT-registered firms (who can claim back their VAT).
If your turnover is below the VAT threshold, carefully assess the benefits and drawbacks for your specific case, and get professional advice if you are unclear.
Which VAT scheme should I use?
There are a variety of VAT schemes available to businesses, so it’s crucial to figure out which one is best for you. The following are examples of typical schemes:
- For firms with a turnover of less than £150,000, the Flat Rate Scheme is available. You pay HMRC a percentage of your turnover, with predetermined rates for different industries, but you can’t claim back VAT you spend on purchases under this plan.
- Small businesses often use the cash accounting scheme since they only have to pay HMRC the VAT income they really received during a quarter. However, this means you won’t be able to claim VAT back on any bills that haven’t been paid. This scheme is only available to businesses with a turnover of less than £1.35 million.
- Annual Accounting Scheme: Rather than filing quarterly returns, this scheme allows you to pay your bill in advance throughout the year. Then you file a single VAT return, pay the amount, and get a refund for any overpayments. Only enterprises with a turnover of less than £1.35 million are eligible.
Although there are a variety of VAT retail plans for enterprises in that industry, these are the main options.
To register for VAT, what do I need?
In the majority of circumstances, registering for VAT can be done online (or by using paper form VAT1). You’ll need the following information before you can log on and start your registration:
- Your Individual Tax Identification Number. When you registered to pay Corporation Tax, you were given a ten-digit number.
- Details of your company’s bank account.
- Your company’s registration number and address.
- Information on any related businesses from the previous two years.
If necessary, you may also require information about any businesses that are being transferred or purchased.
You should receive a VAT registration certificate when you apply for VAT (VAT4). The following will be stated:
Your VAT registration number, as well as the date by which you must file your first VAT return and make your first payment, is known as your ‘effective date of registration.’
On any receipt or invoice where VAT is applied to goods and services, you must include your VAT registration number.