Should I Register for VAT Returns?

 

Tags – Should I Register for VAT Returns

 

As your business grows, you might be wondering if (and when) you need to become VAT-registered. Fortunately, the guidelines are very straightforward:

Not all organisations need to register for VAT. But, once a business hits a certain taxable turnover, you are then obliged to register your company for VAT. 

Below we explain what VAT is, at what point you have to become VAT-registered, and the perks of voluntarily VAT-registering your business before it hits the revenue threshold. 

 

What is VAT?

VAT stands for ‘Value Added Tax’. This is a specific kind of sales tax VAT registered businesses charge customers on the value of their products and/or services. 

In the UK, the typical VAT rate is 20%. However, some items don’t require VAT, no matter how much revenue your business generates. For instance, children’s clothing requires 0% VAT. In contrast, household fuel, i.e., gas and electricity, are charged at a reduced rate of 5%.

 

When Do You Have to Become VAT-Registered?

If you are generating a taxable turnover of more than £85,000, you are obliged to register with HMRC (HM Revenue and Customs) for VAT. 

Once you reach this threshold, you must register your company within 30 days. Otherwise, you are liable for a penalty for failure to notify. The cost of the fine varies on the amount of VAT owed and how late you informed HMRC. 

If your business generates below £85,000, there is no need to worry. You are under no obligation to VAT-register your business (although you can, should you wish to). 

Once VAT-registered, businesses can charge their customers VAT. They can also reclaim the cost of any VAT on goods and services they purchased where VAT was charged.

 

Why Would a Business Voluntarily Become VAT-Registered?

There are a few benefits of voluntarily VAT registering your business. For instance:

 

You Dodge Financial Penalties 

If your business is just under the revenue threshold, it is wise to preemptively VAT register your company. That way, if you creep over the limit without realising, you won’t have to pay a surprise fine from the taxman.

 

Reclaim Past VAT Charges 

When you voluntarily go VAT registered, you can reclaim any VAT you incurred before you started your business. Of course, this only applies if these purchases are now used by the company. As long as you keep and declare proper VAT records and invoices, you could enjoy a hefty tax rebate.

 

Bolster Your Business Profile

If you are a small business, particularly ones operating within the B2B market, most people are aware of the VAT registration threshold. As such, registering your business for VAT can give the impression your enterprise is bigger than it really is. This helps to inspire confidence in your customers and provides somewhat of a competitive edge if you are working in a particularly competitive niche. 

Not only that, but if you want to do business with more prominent companies, registering your business for VAT is a wise choice. It is not uncommon for larger organisations to only do business with VAT registered companies. After all, if you do not have a VAT registration number, they won’t be able to reclaim the VAT back from whatever they purchase from you.

 

To learn more, get in touch with us today.

 

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  3. Tax Residence – Determining if Your Must Pay Tax in the UK
  4. Making Tax Digital
  5. Child Tax Credits: How do They Vary

 

This blog was produced in collaboration with the Coventry division of MilBen Accounts.

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