Should I register for VAT?
Posted on 11th February 2021
A question that often arises with small business owners is whether they should register for VAT (Value Added Tax), so it is important to know what the VAT threshold is and also when you need to register.
The current VAT threshold in the UK is £85,000. If the taxable turnover over your business exceeds £85,000 over a consecutive 12 month period, then you must register for VAT. If you fail to do so within 30 days, then you are very likely to receive a penalty.
It is worth checking each year what the threshold is, as it frequently changes every financial year.
Voluntary Registration
You can also voluntarily register for VAT. The reasons a business may do this are:
If the customers of a business are predominantly VAT registered, therefore any VAT charged can be recovered. It then makes no difference to their customers whether they are registered or not.
The business is regularly in a refund position with HMRC, so it would be better off if it was VAT registered.
The business is ready for expansion and growth.
The downfalls of voluntary VAT registration may be:
Having to spend more time on paperwork.
Passing on higher prices to customers, particularly if your customer base is the general public rather than larger VAT registered businesses (who are able to claim back their VAT).
If your turnover is below the threshold, it's worth looking at the positive and negative aspects and deciding if it is the right decision for your business.
Choosing the right VAT scheme for your business
VAT Flat Rate Scheme - this is for businesses with a taxable turnover of less than £150,000 (the total of everything you have sold that isn’t VAT exempt). You pay a percentage of your turnover to HMRC, which has set rates for different types of industry. However, under this scheme you can’t claim back any VAT you incur on purchases.
VAT Cash Accounting Scheme - a popular choice among small businesses (with a turnover of less than £1.35m), you only need to pay HMRC the VAT income you have received during a quarter. This does mean that you are unable to claim back any VAT on any unpaid invoices.
Annual Accounting Scheme - rather than making quarterly returns, this scheme allows you to make payments in advance throughout the year (using estimated amounts from the previous year). You then file one annual VAT return and pay any outstanding amounts owing, or claim back any overpayment. This scheme is only available to businesses with a turnover of less than £1.35m.
How do I register for VAT?
You can easily register for VAT online via the gov.uk website. You will need need to have the following information available:
UTR number
Business bank details
Company number & registered address
Details of any associated businesses from the past 2 years
You should then receive a VAT registration certificate (VAT4) which will show:
Your VAT registration number
The submission date for your first payment & VAT return
The effective date of registration
You will then be able to quote your VAT registration number on any invoices or receipts in which VAT is applied to services or goods.
Next steps
We're more than happy to discuss any matters relating to any aspect of VAT or tax in general! Feel free to get in touch with us today to see how we can ease your tax and accounting headaches. Feel free to give us a call or drop us an email. We’ll be more than happy to help advise you, taking your individual circumstances into consideration.
Written by
Nicola J Sorrell -
Effective Accounting
Founder | Xero Champion | IR35 Expert
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