Registering for VAT – what’s involved

It might seem like a daunting prospect, but registering for VAT is actually fairly simple:

Go to HM Revenue & Customs (HMRC) website and find the page ‘how to register for VAT’

You can either download the form to complete and then post, or complete online. As all newly registered business have to submit their VAT forms electronically, it makes sense to register online.

There’s plenty of advice and guidance on the website, as well as any extra forms you may need (eg if you have a partnership) or if you can’t register online (eg you trade internationally).

WHO HAS TO REGISTER

If your business is making taxable supplies (that is, selling goods or services that aren’t exempt from VAT – see below) and
Your sales were £70,000 or more in the previous 12 months, or
Your sales will hit £70,000 in the next 30 days (unless this is temporary), or
You take over a VAT registered business

Then you have to register.

Exempt supplies include insurance, finance and credit, most transactions involving commercial land and buildings, and education and training (unless on a commercial basis).

VOLUNTARY REGISTRATION

You can register for VAT even if you don’t hit the VAT threshold of £70,000 unless you just make exempt supplies. But why would you want to do this?

Well, there can be a number of benefits, including:

Claiming VAT back on your purchases
If you sell Zero Rated goods (such as some food products or children’s clothing), you can claim a refund from HMRC on any Standard Rated purchases
Your organisation will look more credible if it has a VAT number – sometimes you will need to have a VAT number to bid for work from larger companies or government bodies, for example

BUT one you register for VAT, you will need to add 20% to your sales price from 4^th Jan 2011. This isn’t a problem if you’re selling to mainly VAT registered organisations. But if your customers are the general public or small businesses then you could become uncompetitive, or lose some of your margin.

WHAT WILL YOU PAY?

Once you’re registered you will need to make regular VAT returns, usually quarterly, and for new registrations these have to be submitted online. Information on this is available on HMRC’s website

To complete your returns you will need to have good accounting records which show the goods or services you sell, the VAT you charge on your sales, and the goods and services your purchase, together with the VAT you are reclaiming on them.

The amount you have to pay is basically

VAT on sales – VAT on purchases = VAT payable

If the purchases figure is higher you will get a refund. In some circumstances the equation is more complicated, for example if you sell second hand goods or if some of your sales are exempt.

VAT SCHEMES

There are a number of VAT schemes designed to help reduce the burden on small businesses. These include:

CASH ACCOUNTING, which means you only pay VAT on your sales when you get paid yourself, so there’s no cashflow disadvantage, and
FLAT RATE SCHEME, which calculates the VAT you have to pay over using a single, lower rate, so you don’t have to add up all your purchases and deduct the VAT from your sales VAT.

Of course the best thing to do is to speak to someone who has the knowledge and experience details to be found here.