Your Tax Shop, amongst many other accountants, are aware that Value Added Tax (VAT) can be one of the most complex of taxes. There are so many rules, regulations and schemes, which are also continuously being updated by HMRC, that getting the right advice from a suitably qualified professional, is essential for many business owners.

Are you considering registering for VAT or maybe you’re unsure whether or not you are obliged to register for VAT? Read the below points to see if we can answer some of your queries and concerns…

What are the key facts that business owners should be aware of about VAT?

  1. 1) All businesses must register and account for VAT if their taxable turnover i.e. all sales that are not exempt from VAT, in any previous 12-month period exceeds the VAT threshold. That includes all trading businesses such as the self-employed i.e. sole-traders, and members of a partnership – not just limited companies!
  2. 2) You must also register for VAT if you:
  3. – Expect your turnover to go over the threshold in the next 30 days
  4. – Take over a VAT registered business as a going concern
  5. – Sell goods into the UK from another EU country and exceed the “distance selling threshold” which is currently £70,000 for 2019/20
  6. – Buy goods from other EU countries totalling more than the VAT threshold in a year
  7. 3) The VAT threshold for 2019/20 is £85,000 and it will stay this way until at least the 1st April 2022.
  8. 4) You can apply to de-register from VAT if your taxable turnover falls below the deregistration threshold of £83,000 per year. Again, this threshold will also remain this way until at least the 1st April 2022.
  9. 5) If your business is VAT registered, you must charge VAT on all VATable sales. The current standard rate of VAT is 20%; there is a reduced rate of 5%; and some goods or services may in fact be zero-rated or exempt from VAT altogether.
  10. 6) When VAT registered, you can reclaim and offset any VAT paid on your business purchases against your VAT due on sales, so long as you have not opted to be part of the Flat Rate Scheme, as this is calculated in a different way.
  11. 7) When your business becomes VAT registered, it effectively agrees to become an unpaid tax collector for HMRC, because you pay any VAT that you’ve charged on goods or services that you have sold, less any VAT you’ve paid out on things your business has bought.
  12. 8) After registering for VAT, you should explain to your customers that you’re now VAT registered and present your VAT number alongside adding VAT to the price of things they buy from you, on the invoices or receipt you give them.
  13. 9) If any of your customers are VAT registered themselves, they can claim back any VAT that they’ve paid to you via their own VAT returns, so, in effect the VAT element is reduced to NIL in HMRC’s eyes. Ultimately, if VAT registered, your customers do not end up paying the higher price i.e. including VAT.
  14. 10) In contrast to the above point, if your customers are not VAT registered, they cannot claim back the VAT they’ve paid to you. They must either accept the slightly higher price increase, or to retain their custom you might agree to consider reducing your prices or margins.
  15. 11) Becoming VAT registered can mean your prices become less competitive, especially to those customers who aren’t VAT registered. You should bear this in mind and consider this when setting a price if you become VAT registered.
  16. 12) The VAT returns are always due to be submitted and any tax liability paid to HMRC, one month and seven days following the quarter-end date e.g. 7th June for 30th April quarter end and so on.
  17. 13) If you’re registered for VAT and have a turnover of more than £85,000, then you will fall under the recently introduced new reporting regime, Making Tax Digital, which came into effect earlier this year on the 1st April 2019.
  18. 14) You must start getting into the habit of keeping digital records, although this doesn’t mean having to buy some fancy expensive software. You can simply record things into a spreadsheet and send it off to HMRC via bridging software.
  19. 15) There are several special schemes that you can opt to use if you’re VAT registered, which include the Cash Accounting and Flat Rate schemes. Your Tax Shop can help choose the right scheme for you, by providing tailored expert advice, ensuring you select the right VAT scheme for your business’ needs.

Your Tax Shop hope that the above points have helped you become more familiar and have a better understanding of what VAT involves. If you would like any further information on this article or require any advice or help in terms of registering for VAT and choosing the right VAT scheme for your business, get in touch with us today and allow us to make tax simple for your business, by contacting us on 0161 339 5689 or book an appointment!