To VAT register, or not to VAT register: that is the question
Well, for businesses whose VAT taxable turnover, (which is everything you sell that is not exempt from VAT), exceeds the registration threshold of £85,000 in a rolling 12 month period it is compulsory to register and HMRC may impose penalties for late registration. Furthermore, you will still be required to pay VAT from the date you should’ve registered, so this could lead to a large bill if you haven’t made allowances for this payment.
If your turnover is below this figure, it is possible to register voluntarily and in some cases can be advantageous to do so.
If you don’t register when you should, you could find yourself having some awkward conversations with customers if you need to go back to them requesting an additional 20% be paid to cover the VAT. If the customer is also VAT registered this mitigates the problem somewhat, as they should be able to include the VAT on their own return, but it is a situation which can be avoided with some advance planning.
It is therefore important to monitor your turnover on a 12-monthly rolling basis. Your calculations should include any UK sales which would ordinarily be standard or zero-rated and should exclude exempt sales. If you’re not sure what to include, do get in touch.
Key points to keep in mind are:
- If you expect the value of everything you sell to reach the threshold in the next 30 days, you must register straight away – you have 30 days to register and your effective date of registration will be the date you realised, not the date your turnover exceeded the threshold.
- If your VAT taxable turnover was above the threshold in the last 12 months you must register within 30 days of the month when you went over the threshold, not from the date you realised. In this instance the effective date of registration will be the first day of the second month after you go over the threshold. This is best illustrated by an example:
- In the 12month period from 1 January to 31 December, VAT taxable turnover is £100,000
- You must register by 30 January (30 days after you went over the threshold)
- Effective date of registration will be 1 February (first day of the second month after going over the threshold)
Now you know that registration is required, how do you do it?
Get in touch with your contact at Charterhouse and our team in the Business Support Unit will be able to help you with the online application. We will need to provide certain information, including details about the person or business registering; the reasons for registration; estimates of turnover and whether or not it is expected that the business is likely to be a net receiver (where the amount of VAT you had paid on products and services exceeds the amount you have charged); you may also want to think about the quarterly VAT periods bearing in mind that the VAT payment due date is 1 month and 7 days after a quarter-end the VAT return periods to use, and whether any VAT schemes will be applied for.
Considerations here include whether or not you want your quarterly VAT filing dates to coincide with your accounting year-end. One scheme to consider is the Flat Rate scheme, which simplifies record-keeping by effectively ignoring VAT on purchases. We are happy to review your businesses activity and advise on the most appropriate scheme for you.
If your business is involved in Land & Property there are also some additional requirements to consider which we can take you through.
Once the application has been submitted this will be reviewed by HMRC and unless any questions are raised a VAT number will be issued, usually within a fortnight, and a registration certificate will follow with the important details.
My turnover is below the threshold – why should I register?
If your business turnover is below the £85,000 threshold there can still be advantages to being VAT registered, here are a few:
Impressions matter – One of the classic responses to this question is because of the prestige of being a VAT registered business. The customers you engage with don’t need to know your level of turnover so it can appear a badge of success and may help to build your business profile.
Do it before it’s too late – Another reason, particularly for a growing business, is to avoid some of the potential issues arising from having to keep track of your turnover to know if or when you need to register. Why wait until you have to, or until it’s too late, when you can register before it becomes compulsory.
Record-keeping requirements – Yes, you read that correctly; the fact that you now have to keep up to date with your bookkeeping for quarterly VAT filing is a good thing! Nowadays with software like Xero and Dext available, accurate real-time data is achievable and beneficial.
Reclaiming input VAT – While your business may not be registered, it’s possible that many of the suppliers you deal with are. This means they are charging an extra 20% on top of their goods or services which your business simply has to absorb as a cost. If you register you can reclaim that VAT back as input VAT.
Pre-registration claims – HMRC allows you to recover VAT paid before registration, though you do need to be aware of the time limits and criteria here, which is:
- 4 years back from the date of registration for goods you still have, or that were used to make other goods you still have
- 6 months for services
You can only make this claim on your first VAT return and any VAT claimed must relate to VAT taxable goods you have bought for the provision of goods or services you supply – in other words it must strictly relate to your business purpose to be allowable.