VAT options explained
When you start off in business, you’re likely to get caught up with making your product or service the best it can be. However, once you start to find success, reality bites and you suddenly require an advanced understanding of tax to stay on HMRC’s good side. So, to make things a little more straightforward, here’s our expert guide to registering and paying for VAT:
When do I need to register my business for VAT?
You should register your business for VAT with HMRC once your VAT taxable turnover rises above £82,000 per year. You can also register voluntarily if your turnover is lower than this amount (unless all of your products/services are exempt from the charge).
You will need to select the appropriate VAT category for your business as part of the registration process.
Once you’re registered, the taxman will send out a VAT registration certificate that confirms your details and provides you with some further info, including:
- VAT number
- Initial VAT Return and payment deadline
- Your ‘effective date of registration’
Don’t forget, there are certain purchase types made before registration on which you can also claim back VAT, unless you join the flat rate scheme (see below).
What are my responsibilities once I’ve registered for VAT?
VAT-registered businesses have certain tasks and deadlines to maintain in order to stay within the rules. These include:
- Charging customers the right amount of VAT
- Submitting VAT returns on schedule
- Paying VAT owed to the taxman
- Maintaining records in your VAT account
Could I save money with a VAT Flat Rate Scheme?
Businesses typically make VAT payments based on the difference between VAT charged to customers and VAT paid on business purchases.
The VAT Flat Rate scheme works a little differently, enabling you to save time and (potentially) money by paying a fixed rate to HMRC and keeping the difference between what you charge customers and what you pay the taxman (i.e. you may charge your customers 20%, but only pay 12%, leaving 8% for you to retain).
However, the flat rate scheme prevents you from reclaiming VAT made on your own business purchases (unless it is an exempted capital asset worth over £2,000), and you’ll need a VAT turnover of less than £150,000. Ask your accountant whether the flat rate scheme is right for your business.
At what point would I need to exit the scheme?
Registration on the Flat Rate Scheme is re-evaluated each year on the anniversary of the registration date. When a business reaches a level whereby total income (including VAT) is £230,000 per year or higher, they’re required to leave the Flat Rate Scheme.
VAT can be a complex and confusing aspect of business that takes up a disproportionate amount of time. If you want to receive advice that is tailor made to your business, your best bet is to call on a small business accountant with the right expertise.
If you want more insightful accounting advice for small business owners, call on the experts at 3 Wise Bears today.
