VAT Registration and Returns - An Overview
What is VAT?
VAT or “Value Added Tax” is a tax charged on most goods and services in the UK.
As a customer when you buy a product that is eligible for VAT, VAT is automatically included in the price you pay. For example, if I purchase a laptop for £600 from a large electronic goods retailer, 20% of the total price (£100) will be VAT. This is regardless of if I purchase the item as a business or consumer.
Not all businesses are VAT registered, those businesses not VAT registered will not charge VAT (more on this below).
What are the rates of VAT?
There are three main rates of VAT which apply to goods and services in the UK.
These rates are;
Standard Rate (currently 20%);
Reduced Rate (currently 5%) and;
Zero Rate (0%).
Items may also be exempt (or “outside the scope”) of VAT.
VAT exempt items are outside of all VAT schemes and are not taxable.
You don’t include sales of exempt goods or services in your taxable turnover for VAT purposes. If you buy exempt items, there’s no VAT to reclaim.
Sales of zero-rated items count as taxable sales as far as the VAT registration threshold is concerned, along with sales that are subject to 5% or 20% VAT. Items at the standard, reduced and zero rate will be included in the businesses VAT return.
Which businesses can register for VAT?
Sole Traders, Partnerships and Limited Companies can all register for VAT in addition to other business entities such as LLPs.
When should I / my business register for VAT?
Legally, you /your business must register for VAT when;
Your businesses VAT-taxable turnover (the total of all sales that aren’t exempt from VAT standard/reduced/zero rate goods and services) exceeds the current threshold of £85,000 per annum on a rolling 12-monthly basis;
You expect your businesses VAT-taxable turnover of £85,000 to exceed the threshold in a single 30-day period;
Your business only sell goods or services that are exempt from VAT, but you purchase goods to use in your business to the value of more than the threshold from VAT-registered suppliers in the EU.
You will need to register your business for VAT within 30 days of meeting any of these criteria.
Failure to notify HMRC on time may result in a penalty.
There are some situations in which it may be beneficial to voluntarily register for VAT before you reach the £85,000 threshold, for example where your sales are zero-rated but you can reclaim the purchase VAT.
When should my business start charging VAT?
When your turnover reaches the VAT threshold of £85,000 per annum in a rolling 12 month period, you must start charging VAT from the first day of the second month after you exceed the threshold.
For example, if on 31st January 2022, your sales for the previous 12 months are £85,000,then your VAT registration date will be 1st March 2022.
When you expect to exceed the VAT threshold of £85,000 in a single 30-day period, you must start charging VAT immediately.
Why might I not want to register my business for VAT?
If your clients are individuals or smaller business that not VAT registered themselves, the addition of VAT will effectively increase your prices by up to 20%.
In addition, by registering for VAT your are required to complete and file a VAT return, usually this is on a quarterly basis.
From 1st April 2022, all VAT registered business will need to comply with Making Tax Digital (MTD) for VAT rules, which means keeping electronic records and submitting VAT returns digitally using approved MTD software.
How do my business register for VAT?
Registering for VAT can be done online via your businesses government gateway account.
Alternatively, your accountant can complete the registration for you.
Can I de-register my business for VAT?
If your business turnover is below £83,000 per annum on a rolling 12 monthly basis you can de-register for VAT. This is regardless of if the initial VAT registration was mandatory or voluntary.
An application for de-registration can be made online. Your accountant can complete this for you.