VAT stands for Value Added Tax. It is collected at any time value is added to a product. Normally businesses pay VAT to Her Majesty’s Revenue and Customs (HMRC) when they sell or hire out any goods or services. Sometimes, there are exceptions, such as making sales outside of the UK, but generally, VAT applies to every sale.
As a business, you can reclaim VAT that you pay on business expenses – you just need to make sure that you are VAT registered.
Do I have to register for VAT?
It’s compulsory to register for VAT once your revenue passes a threshold amount. That threshold can change from year to year (current 2017 rate = £85,000). Once you pass the threshold you have thirty days to register. If your business earns less than the threshold amount, registering for VAT is optional.
What are the advantages of registering for VAT?
- – You can reclaim VAT paid on purchases for business purposes, including computers and utilities.
- – Being VAT registered makes you look more professional to other businesses.
- – It can also hide the fact that your turnover may be lower than the compulsory VAT threshold.
- – Some companies will only deal with VAT registered businesses so your scope of customers and suppliers will be bigger
- – If you are a B2B business then your customers who are VAT registered can claim the VAT back on their orders from you
What are the disadvantages of registering for VAT?
- – You’ll need to add VAT to your prices so you may need to charge more. This may hamper the appeal to non-VAT registered companies who are considering using your services.
- – You’ll need to keep all VAT invoices and receipts which is more admin and paperwork.
- – You’ll need to maintain VAT accounting records, and file VAT returns every quarter.
- – Businesses could end up with a large VAT bill from HMRC if they generate more VAT from goods and services sold than the VAT paid on goods and services bought from other businesses.
How to register for VAT?
- – You can register online via the HMRC website
- – Or you can appoint an Accountant to register and submit returns to HMRC on your behalf
If you have any VAT related questions please contact one of the team today on 01326 66 00 22