When do you have to register for VAT?

When do you have to register for VAT?
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    Disclaimer: This article is based on legislation which was correct at time of publishing on July 19, 2024
    This page was last updated on July 19, 2024

    Registering for VAT at the right time is vital for fulfilling your financial obligations with HMRC. It stops you from incurring harsh penalties and fines for non-compliance.
    As your business grows, its profits will usually increase, too.

    When your business exceeds the VAT registration threshold of £90,000 (April 2024) in taxable turnover, you must register for VAT. You have 30 days to do so. After you have registered for VAT, you must start charging and claiming VAT on the products or services you buy and sell.

    Here at Butt Miller, we help growing businesses determine their VAT status and find the best VAT scheme for their business. In this blog, we help you decide whether or not you should apply for VAT and cover the VAT registration process in detail.

    Keep reading to learn when and how to register for VAT. If you need professional VAT advice, please get in touch today.

    What is VAT?

    VAT stands for Value Added Tax. It is a specific type of tax that applies to most goods and services provided by businesses in the UK and to goods imported from outside the European Union.

    For a transaction to be within the scope of VAT, it must be:

    • a supply of goods or services
    • made in the UK
    • made by a taxable person
    • made for the purpose of running a business

    VAT inputs and outputs

    When you register for VAT, you must start charging and paying VAT on certain products and services, which are known as inputs and outputs.

    If you charge customers VAT for the goods and services you sell, this is known as output VAT. Your business is required to collect the VAT charged and pay HMRC. However, if you also pay for goods and services that charge VAT, this is called input VAT. As a business, you can reclaim the VAT you pay on certain expenses, reducing the overall amount you owe to HMRC.

    What do I need to consider regarding VAT?

    There are specific considerations you need to think about if you are on the cusp of the VAT registration threshold. Firstly, are you VAT registered? If your business exceeds the registration threshold within 12 months or expects to go over it within the next 30 days, then you need to prepare to register for VAT.

    However, even if you don’t meet the compulsory VAT registration threshold, you can still register for VAT voluntarily. Some businesses choose to do this to reclaim VAT costs on certain business expenses.

    Secondly, if you are already VAT registered, then you’ll need to consider how much VAT to charge. The standard rate of VAT in the UK is 20%. However, there are also reduced rates of 5% and 0% for certain goods and services, such as children’s car seats and most food items.

    Then, there are other goods and services that are exempt from VAT altogether. These can include most financial and insurance services, healthcare services provided by doctors and dentists, and certain cultural and educational activities.

    There is a difference between offering zero-rated supplies and being VAT-exempt:

    • VAT exempt – if you only sell products and services that are usually exempt from VAT, then your customers won’t have to pay VAT, but you can’t reclaim VAT on your own expenses.
    • Zero-rated – if you sell zero-rated supplies, then you technically still charge VAT, but at a 0% rate. Your customers don’t pay VAT on the zero-rated products and services, and you can reclaim VAT on your own purchases related to those supplies.

    It’s important to stay on top of the changes to UK tax rules to ensure you’re always meeting your obligations. You can find out the latest VAT information on the government website or by contacting an experienced VAT accountant like Butt Miller.

    Is VAT registration necessary?

    If your business exceeds the annual VAT registration threshold, then yes, it is necessary to register your business for VAT. You’ll need to start charging VAT as well as paying for it, and you’ll be expected to report these transactions to HMRC.

    What is a taxable person?

    A taxable person is any individual or business that makes or intends to make and sell taxable supplies. They are expected to be VAT registered and follow their tax obligations.

    For the purpose of VAT registration, a taxable person includes:

    • Individuals
    • Partnerships
    • Companies, clubs and associations
    • Charities

    What is the VAT administration process?

    Registering for VAT is a significant step once your business reaches the registration threshold. While it may indicate that your business is headed for growth, it does come with more responsibility, which may feel daunting.

    Here’s how you can register for VAT:

    • Collect all of your business’s essential information and documents, including details of your legal structure, turnover, bank accounts and your Unique Taxpayer Reference number.
    • You’ll also need to create a Government Gateway account if you don’t already have one. This allows you to access various online services, including VAT services.
    • You can then register for VAT online.
    • Complete the registration form and await HMRC’s response.
    • HMRC will provide a confirmation letter with your VAT registration number, registration date, and details of how to submit your first VAT return.

    You can keep a close eye on your VAT return deadlines, penalties and other important information in your VAT online account. This is where you can also make changes to your VAT registration status.

    How are VAT records kept and inspected?

    When your business becomes VAT-registered, you must keep well-maintained records of everything you purchase and sell. HMRC may want to check your records on occasion, so it is always important to have them readily available.

    With Making Tax Digital well underway, businesses are required to keep some of their records digitally.

    To comply with HMRC, you should keep a proven track record of everything you buy and sell (including zero-rated and exempt items).

    You should keep records of:

    • Invoices you supply to customers
    • Invoices you receive from suppliers
    • Credit and debit notes
    • Details of self-billing suppliers
    • Goods you take from your own stock for personal use

    What are the offences and penalties?

    If you fail to register for VAT on time or don’t meet your VAT responsibilities, you may receive penalties for non-compliance. This can include penalties for late VAT returns or payments, late registration or errors in your VAT returns.

    What is the Cash Accounting Scheme?

    If your taxable turnover is under £1.35 million, then you can sign up for the VAT Cash Accounting Scheme. This scheme is a simplified method that allows you to pay and reclaim VAT as soon as your customers pay you or when you have paid a supplier.

    This can allow for better cash flow, as it means you will be paying for VAT once the funds actually come through rather than on the invoice date.

    Retail schemes

    VAT retail schemes can simplify calculating VAT for businesses operating in the retail sector. Instead of tracking all of the sales, you can calculate the overall VAT owed using a pre-calculated percentage.

    Flat Rate Scheme

    If you’re a small business, you may benefit from the VAT Flat Rate Scheme, another method for reducing the challenges around calculating VAT. This scheme allows you to pay a fixed VAT rate to HMRC to simplify administrative work.

    However, you may not be able to claim VAT under the Flat Rate Scheme.

    How does Making Tax Digital affect VAT?

    Making Tax Digital is a government tax initiative that aims to reduce tax discrepancies by implementing digital tax and accounting practices. It encourages businesses to keep digital records, submit regular updates, and use MTD-compatible software.

    When you become a VAT-registered business, you are then required to follow the rules of Making Tax Digital. This means using MTD-compatible software to keep digital records and submit VAT returns electronically.

    Get help with your VAT registration and returns with Butt Miller

    At Butt Miller, we support various businesses with the challenges of VAT, from the registration process to ongoing VAT duties. Our expertise and guidance can help your business avoid costly mistakes and penalties while identifying innovative tax-saving opportunities.

    Here’s what our comprehensive VAT accounting services have to offer:

    • Determining your VAT liability
    • Completing the registration process
    • Choosing the best VAT schemes for your business
    • Advising on compliance matters
    • Calculating VAT
    • VAT planning and advice
    • Representation in HMRC disputes

    So, when do you have to register for VAT?

    Registering for VAT will mostly depend on whether or not your business is making over the annual VAT threshold, which currently stands at £90,000. Then, there’s the decision to register for voluntary VAT, which largely depends on your business’s circumstances and the potential benefits and drawbacks of registering.

    At Butt Miller, we can help you determine when to register and support you throughout the process. Contact Butt Miller today for expert VAT advice. We’ll help you see the bigger financial picture.

    Frequently asked questions about registering VAT 

    How much does it cost to be VAT registered?

    Registering for VAT in the UK is a free online service. There are no direct costs associated with it.

    However, there may be indirect costs to consider. The indirect costs can include hiring a tax advisor or accountant to support you through the process and purchasing VAT software that complies with Making Tax Digital. You may also find that your cash flow takes a hit, especially in the first few months, as you get used to charging and paying for VAT.

    Is it worth being VAT registered?

    Registering for VAT largely depends on your business income. If your turnover exceeds £90,000, then it’s not really a question of whether VAT registration is worth it. It’s a mandatory requirement.

    Voluntary registration, on the other hand, might be worthwhile if you want to recoup some of the VAT you pay, and it may even help your business build authority.

    Can you only charge VAT if you are registered?

    Only VAT-registered businesses can charge VAT on their products or services. If you’re not registered, then you don’t need to charge VAT on your sales, but you still have to pay VAT on your purchases.

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