What is VAT? Value Added Tax (VAT) is a consumption tax that is levied on the value added to goods and services at each stage of production or distribution. In the UK, businesses collect VAT from their customers on behalf of HM Revenue and Customs (HMRC) and then remit the collected VAT to the government.

Why Register for VAT? Registering for VAT is a legal requirement if your business’s taxable turnover exceeds the VAT threshold, which is currently £85,000. However, even if your turnover is below this threshold, you can voluntarily register for VAT. Here are some reasons why businesses choose to register for VAT:

1. Credibility: Being VAT registered can enhance your business’s credibility, as it signals to customers and suppliers that your company is established and growing.
2. Reclaim Input VAT: You can reclaim the VAT you pay on your business expenses, such as office supplies, equipment, and services. This can result in significant cost savings for your business.
3. Competitive Advantage: Some businesses are more likely to work with VAT-registered companies, as they can recover the VAT charged to them.
4. Global Trade: If you plan to trade internationally, having a VAT number may be necessary for compliance with other countries’ tax requirements.

VAT Schemes: There are different VAT schemes which may be relevant to your business:

1. Flat Rate Scheme: A simplified scheme for businesses with an annual taxable turnover of £150,000 or less, for more information check out our blog page – What is the Flat Rate VAT Scheme?
2. Annual Accounting Scheme: Under this scheme you make advance VAT payments towards your VAT bill based on your last return and only submit one return a year instead of four. When you submit the return you either make a final payment or apply for a refund.
3. Cash Accounting Scheme: Under this scheme you only pay VAT on your sales to HMRC when your customer pays you, and only reclaim VAT on purchases when you pay your supplier.
4. VAT Margin Scheme: If you are a retail business or sell second-hand goods, this scheme will allow you pay VAT on the profit you make on items rather than the full selling price.
5. VAT Retail Schemes: Under these schemes instead of calculating the VAT on each sale you only do it once with each VAT return.

Once registered, you must comply with VAT rules, including charging VAT to customers, filing regular VAT returns, and keeping accurate records of all transactions.

You will need to file VAT returns (usually quarterly) and pay any VAT owed to HMRC. You can also reclaim the VAT you’ve paid on eligible expenses.

It is important to be aware of the different VAT rates applicable to goods and services. The standard rate is 20%, but there are reduced rates and exemptions for certain items.

Important Considerations:

• VAT can be complex, so it’s advisable to seek professional advice from an accountant with expertise in VAT matters.
• Ensure that your accounting systems are capable of handling VAT calculations and reporting accurately.
• Be aware of the deadlines for VAT returns and payments to avoid penalties.

If you are not sure whether your business needs to register for VAT, or if it would be advantageous for you to register voluntarily, contact us at [email protected] for more information.