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For most businesses, registering for VAT is a simple process which can be easily completed online. This is also the case for groups of companies who want to register under a single VAT number. You will need to provide some details such as your turnover, the nature of your business and your bank details. The date on which you register will be the date from which you will need to pay VAT to HM Revenue and Customs (HMRC).
When you register, you will create an online account which you can use to submit your VAT returns to HMRC, who will then send you a VAT registration certificate. This should arrive within 14 days of your online registration and will contain details of your VAT number.
If you have a question about VAT or any other type of contractor tax, you may find the answer in our tax frequently asked questions page.
You must register for VAT if your VAT taxable turnover exceeds the threshold of £85,000 in any twelve month period, or if you know that you are going to exceed that figure. Your VAT taxable turnover is the total of everything sold excluding VAT exempt items or services. You will also need to register for VAT if you receive goods from a country within the EU, which have a total value of more than £85,000, or if you expect to go over the threshold in any single 30 day period.
If neither you nor your business is actually UK based, then there is no threshold and you will have to register for VAT as soon as you provide any goods or services to a customer in the UK, or if you expect to do so in the coming 30 day period. If you fail to register within 30 days of exceeding the threshold then you will be expected to pay everything you owe from the time you should have registered, plus HMRC could also apply a penalty. The deadline for submitting a VAT return and paying your bill is usually one month and seven calendar days after the end of an accounting period. Failure to submit your VAT return and pay your bill on time (including time for the payment to clear in HMRC’s account) could result in a penalty.
If your business turnover is below £85,000, you can still register voluntarily for VAT, but once you have registered you are liable for any VAT owed from the day of registration. Some businesses choose voluntary registration because it affords them some benefits, not least because it can give the impression that they are larger and more established. Some VAT registered businesses prefer to deal with other VAT related businesses and some companies find that not having a VAT number can limit the number of organisations that will work with them.
There are also direct financial benefits such as the ability to charge VAT on any goods and services you supply, which is known as ‘output tax’, and reclaiming VAT on items bought from other businesses, which is known as ‘input tax’. Businesses that sell zero-rated products or services can get VAT refunds on any purchases that they make at the standard rate of VAT.
The Flat Rate VAT scheme is open to companies whose annual turnover, excluding VAT, is less than £150,000, but you must apply to HMRC to be included in the scheme. Many freelancers, contractors and consultants register for the Flat Rate VAT Scheme as it reduces the level of admin required to remain VAT compliant and can also earn them additional money. If you do join the scheme, you are unable to reclaim VAT on your purchases (with certain exceptions), so it is not suitable for businesses that buy a lot of stock or have lots of VAT chargeable expenses.
Many limited companies take advantage of the savings offered by the Flat Rate VAT Scheme, which allows them to charge VAT at the prevailing rate (20%) and repay it to HMRC at a lower rate determined by the type of business in which they are engaged. By acting as ‘agents’ and collecting VAT, limited companies are able to keep the difference between what they charge their customers and clients and what they are expected to repay on their VAT return. This means that an IT contractor, for example, can charge VAT at 20% and will only have to repay it at a rate of 14.5% (13.5% in the first year as new registrants receive a 1% discount for the first twelve months).
You can make savings by registering for VAT, but there is a little additional administration to be done to ensure that you comply with all the relevant legislation and meet the deadlines. If you are considering your VAT options, then speaking to a qualified accountant can help you make a decision and get the process underway. Read our guide to the Flat Rate VAT scheme for more information.
If you would like to find out more about how to register for VAT or whether the Flat Rate VAT scheme will benefit you then please get in contact with our new business team on 01253 362062.