VAT, or Value Added tax, is a tax that’s applied to goods and services. Once a business has surpassed a certain threshold in yearly revenue, it must pay VAT for purchases, and also charge the tax to customers. Standard rate is currently 20%, and it is unlikely that this will change any time soon.
Some goods, like energy-efficient materials, are exempt from tax. However, most foods, prescription medicines, and clothing for children, are not. There is also an ‘exempt category’ (which applies to online gaming, financial services and other items). We will go into more detail about this later.
This guide will provide answers to common questions about VAT registration for small business, and what that means for small business. We will examine what the VAT threshold and when to register for VAT is, as well the deadlines for reporting information to HMRC and paying them, and the voluntary VAT registration.
When does a business need to register for VAT?
Businesses in the UK must register for VAT once they reach a certain taxable turnover. Taxable turnover is the value of all goods and services that a company sells, but are not exempt from the VAT. (More on this below). Once registered, businesses can claim VAT paid by suppliers, or pay for items that the company will use (such as computer equipment). HMRC will email you a certificate of VAT registration confirming your VAT number and when to submit your return. Remember that you may be charged a 15% late payment or submission fee if you submit and/or pay your VAT return more than once.
What is the VAT registration limit?
You will reach the threshold for VAT registration once your VAT taxable sales exceed PS85,000 in any 12-month period. As a VAT registered business, you are required to charge the VAT on all goods and services you sell. By being registered, it is possible to claim VAT back from suppliers and on purchases made for the business. You can register even if you don’t reach the PS85,000 threshold (this is called voluntary VAT registration, again, we will discuss this further). However, there are both advantages and disadvantages to this.
What is the process of vat registeration for small business to receive online VAT services
You can get started with GOV.UK Online Portal, as you would most likely do for tax-related matters. You will need to have a Government Gateway username, password and a VAT Online account. You can always appoint an agent or accountant on your behalf to complete online VAT registration and other elements.
Is it possible to register for VAT via post?
A VAT1 VAT registration is required to register by post. This form is for businesses who cannot register online. For example, those registering under the Agricultural Flat Rate Scheme, applying for a registration exempt, or registering different parts of their business using separate VAT numbers.
VAT registration numbers explained
The VAT registration number is the unique code that HMRC issues to businesses when they register for VAT. The VAT registration certificate from HMRC contains the code. Your VAT registration number is required to show and charge VAT on your invoices. The government suggests temporarily raising your prices if you haven’t yet received a VAT number but have already applied for VAT registration. You should also notify your customers.
Difference between exempt and zero-rated
They may look the same on paper, but the implications are vastly different for business. If a company only sells VAT-exempt goods and services, it can’t register to pay VAT. It cannot reclaim VAT from its suppliers.
If your business sells zero rated goods or services, then you can still register for VAT, and claim any tax that suppliers have charged, even if you do not charge your customers any VAT.
When a business sells goods and services that are exempt from tax, but some may be zero-rated or free, the situation can get complex. We recommend that you speak to an accountant, or a member of the Account ease team if this is your situation.
What is a VAT Registration Certificate?
A VAT registration certificate, in simple terms, is a document that HMRC sends to businesses to prove their VAT registration. The certificate shows the VAT number of the business, the due date for the first tax return, and the payment date. It also includes the “effective date” of the registration. These documents are usually delivered within 30 days after completing online VAT registration. However, sometimes it may take longer. Check your online account as these are often sent to you rather than via post (unless they were registered this way).
What is voluntary VAT Registration?
Voluntary registration of VAT is the process by which your business registers even if its annual turnover is less than PS85,000. It can be beneficial.
If you purchase a large number of goods from suppliers that charge VAT, then you can claim the money against future VAT charges by your business.
It gives you the impression that you are a well-established, large organization. This may encourage more businesses to do business with your company.
When is the deadline for VAT returns?
The deadline to submit a VAT returns is one month and seven working days after the end date of the VAT period. This is also the payment deadline with HMRC. You’ll need to submit a VAT Return to HMRC at least every three months.
Submitting HMRC VAT Return and Payment
GOV.UK has a detailed guide on how to submit a VAT Return. You’re basically telling HMRC the amount of VAT you charged to your customers, and how much you paid to other companies. You can avoid penalties and late payment fees by submitting your return to HMRC and paying them on time, no later than one month and seven days after the end date of the previous period.
Booking a demo today with one of Account Ease’s specialists will allow you to learn how Account ease can streamline and consolidate your HR and finance processes. This will give you more time to focus on your VAT returns and registrations.
