How and when to register your Business for VAT

VAT, or Value Added Tax, is a tax levied on goods and services from companies that are VAT registered. Not all purchases are subject to VAT, like children’s clothing and footwear, insurance, education and fundraising.

If your annual taxable turnover in the next 30 days or the 12 months that have passed exceeds the VAT threshold which is currently £85,000. The VAT threshold is pre-determined by the government and its value shall remain the same until 1 April 2020. Any amendments to either the threshold or VAT rate are announced in the annual budget statements.

Should you still want to register for VAT even if your annual turnover does not meet the threshold, you can still voluntarily do so.

How to register your business for VAT

No matter what type of business you have, whether it’s a partnership or a sole proprietorship, you can get it VAT-registered with the HM Revenue and Customs (HMRC) via the VAT registration page online.

In the process of signing up for VAT, you’ll also get to create a VAT online account that you can use for submitting your VAT returns. Alternatively, you can also use an agent to manage your VAT returns and engage with HMRC for you.

If you want to be included in the Agricultural Flat Rate Scheme, want to qualify for a registration exception, or when you want to register divisions of a corporation under different VAT numbers, then registering online won’t be possible. In these instances, you’ll have to do it by filling up the VAT1 form and sending it via post.

Another situation wherein you’ll have to resort to registering via post include importing goods amounting to more than £85,000 from another EU country. For this, you will have to fill out form VAT1B. You’ll also have to register via post, for when you are operating a business from the EU and selling to the UK. In which case, you’ll have to fill out form VAT1A. Finally, you’ll also have to do this if you are getting rid of assets on which 9th or 13th directive refunds have been redeemed. You may do so by filling out form VAT1C.

When registering via post, you can proceed to register for a VAT online account once the HMRC issues your VAT number.

Whichever way you register your business, you should be able to receive your VAT registration certificate within 30 working days via the method you used to register. And if you registered using an agent, you will receive your certificate via post.

When to register your business for VAT

A business is required to register for VAT if its VAT taxable turnover reached more than £85,000 over the last 12 months or if it is predicted to do so in the next 30 days. Other circumstances might also require a business to register for VAT in the UK depending on the type of goods you’ll be selling and your location. As mentioned previously, even if you do not meet this requirement, you can opt to your register on your own.

After which, you will receive a VAT registration certificate containing your VAT number, the effective date of registration and submission date for your initial VAT return and payment.

Moving forward, starting your effective date of registration you have to implement certain actions as a vat-registered business. Among these actions are paying any VAT due to HMRC, submitting VAT returns, charging the appropriate amount of VAT, and maintaining a VAT account and records.

Effective Date of Registration

    • For businesses with a projected VAT taxable turnover within 30 days of more than the threshold, registration will have to be by the end of this period. Keep in mind that in cases like this, the effective date of registration will be the date you started anticipating your VAT taxable turnover to exceed the threshold not the date that it actually happened.
    • For businesses that already exceed the VAT threshold in the past 12 months, registration must be within 30 days of whichever month you choose. For such instances, the effective date of registration will be the first day of the second month following the period you exceeded the threshold.
  • For businesses outside the UK, the threshold does not apply and one must register the moment the business start supplying goods and services to the UK.
  • For businesses that register late, the amount that should have been paid from the time that the registration should have taken place to the date they actually registered must be settled and a penalty may apply.

After registration, you can reclaim some of the VAT you have paid prior on your first VAT return provided that they are related to the services of VAT taxable goods your business supply. There is also a certain time limit you should follow: six months from your date of registration for services and four years for goods or materials used to create goods.

They should be accompanied by supporting documents and information particularly descriptions and purchase dates, invoices and receipts, and details regarding how these goods and services related to your current business.

One thing you must remember is that while waiting for your VAT number to get issued, you cannot charge VAT to your customers but you must still pay that VAT to HMRC for the period in question.

Managing Your Business After Being VAT-registered

As a VAT-registered entity, you’ll be able to access the Gov.uk website where you’ll be able to manage your VAT returns every quarter. Then you’ll be issued a VAT number that you’ll have to incorporate on all sales invoice from the time you receive it. You also need to add an additional 20% to the net charge.

The summary of your earnings (including VAT charged) combined with your expenses (including VAT paid) is what makes up your VAT return. And the difference between both is what you’ll have to pay or redeem every quarter.

Should there be changes in your cash flow in the next 12 months and you feel that you won’t be able to exceed the VAT turnover threshold, then just write to the HMRC detailing why you think so. Be sure to include proof or any supporting documents to back your claim.

Final Words

VAT can be a tricky subject to deal with but armed with the right information, processing and incorporating it into your business will be a breeze. Wrapping your head around the concept and its many nuances may be tedious at first, but once you have successfully registered your business and laid down the framework as to how you will compute your cashflow with VAT in it, you’ll realise how the benefits make the hard work well worth it.

If you have questions you should seek out the advice of a professional accountant like Plummer Parsons. Not only do we make sure you get it right and avoid unnecessary fines but they can help you manage your cash flow and invariably will help you save money in the long run.