I am Chantal Baker, Director and founder of Champ Consultants. We are accountants and tax consultants based in Caterham. We are looking forward to providing you with business and finance tips as well as answering your questions.
I am running a business. Please can you explain when I need to register for VAT (Value Added Tax)?
There are various stages in which a business would need to register for VAT. These apply to whether you are trading as a sole trader, a partnership or a limited company.
1. You must register for VAT compulsorily if your taxable turnover exceeds the VAT threshold in a 12-month rolling period. The current VAT threshold is £85,000. The taxable turnover must be assessed on a 12-month rolling period. The period does not start again at the beginning of an accounting period. It is continuous from the life of the business.
2. If you sign a contract knowing that the turnover of this contract will push you over the VAT threshold, you must register for VAT within 30 days of signing the contract. This trigger is also a compulsory registration for VAT.
3. You can register for VAT voluntarily and this can be done at any time. There may be times when it is in your interest to be VAT registered. For example, if you have VAT you have paid out and want it recovered, or if your customer will only deal with a client who is VAT registered, or even to give out the perception that your business is bigger than it actually is.
4. When you register for VAT it is best to register yourself for the correct VAT scheme at the time of registration.
Once you are VAT registered there are a few things that will happen and you have a few legal obligations:
1. HMRC will send you a VAT certificate and this will confirm:
a. Your VAT number
b. When to submit your first VAT return and payment
c. Your VAT periods
d. Your effective date of registration.
2. Your VAT number must now be shown on all your invoices and you must now charge VAT where applicable. You cannot charge VAT unless you have a VAT number.
3. From your effective date of registration, you will need to:
a. Charge VAT on your income issued at the correct VAT rate
b. Pay over the VAT to HMRC
c. Submit your VAT returns on time
d. Keep proper VAT records
e. Follow the Making Tax Digital (MTD) rules for VAT.
VAT can sometimes be daunting for businesses, but with the available cloud accounting packages available, accounting for VAT is an easy process. Some may fear that by being VAT registered they will lose customers; however, it has been known to increase your business rather than reduce it.
We are always happy to answer your questions and please always seek professional advice before taking any action. Please send your questions to:
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