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VAT - To Register or Not To Register

Category: Business Matters

Added 26th November 2007. Updated 12th May 2013

Firstly, what is VAT all about?

VAT stands for Value Added Tax, and is charged on goods and services which a business supplies to it’s customers in the UK.
A taxable supply which a business makes could be:
? Selling products or goods
? Providing a service, for example, farriery services; accountancy services
Once you are registered for VAT, then you can claim back VAT that you have been charged on purely business expenditure.

What are the VAT rates?

The standard rate of VAT is 17.5%, which applies to most goods and services. A reduced rate of 5% applies to domestic fuel and power. Some goods and services do not need VAT charged on them, and this rate is 0%.

When do I have to register?

If you provide goods and services, (your taxable supplies) and the value of these is more than £64,000 in any 12 month period, then you must register for VAT within 30 days of the end of the month in which you go over this limit.

Can I register even if I don’t go over the limits?

You can apply for voluntary registration at any time, once you are in business. However, you must prove to the VAT office that you are in a continuing business and intend to make taxable supplies.

Why would I want to be registered, if I’m not making £64,000 or more?

If you find that your business is paying out a lot of VAT, either on materials, premises, or services, it may be a good idea to register for VAT so that you can claim back all this VAT. Once you register, you can claim back VAT which you’ve been charged before you registered, on:

1) Assets or stock which you still owned at the date you registered, but purchased during the 3 years prior to registration.
2) Services which you were charged for within the 6 months prior to registration.
You will of course need to keep your paperwork, to prove the amounts of VAT you are claiming.

What about my customers?

From the date you register, you will have to charge VAT on every service or product your business provides. You must therefore add 17.5% onto all your charges, and ensure that your invoices show this charge, and show your VAT number.

If you are providing services to other VAT registered businesses, they will be able to claim back this VAT, so this will not affect them.

However, if you are providing your services to private individuals, they will suddenly be hit with a 17.5% increase in your charges. So you must consider whether this will drive away some customers? If your competitors are mainly VAT registered, they too will be adding 17.5% on top of their charges, so your prices should remain competitive. However, if your competitors are not VAT registered, then you would now appear to be more expensive.

It may be tempting to calculate your VAT so that your customer’s price remains the same. Don’t even consider it, as this will mean the VAT man is taking 17.5% of your profits!

What do I need to do once I’m registered?

Once you receive your VAT registration number from HM Revenue and Customs, you must begin charging VAT on all your sales, and you must keep all your paperwork from which to keep good records. You now have a legal duty to submit a VAT return to HM Revenue and Customs every 3 months. The figures that need to go on the return will come from your records, which will be covered in another article.

There are various different VAT schemes which you can use to make your life easier, some of which are:
Annual accounting: One annual VAT return with 12 equal payments to HMRC.
Cash accounting: You only pay VAT to HMRC when your customers pay you.
Retail schemes: To calculate VAT you owe on your sales if you are in the retail industry

And Finally……

The pros and cons of registering for VAT need careful consideration. However, once you are registered, you can apply to de-register at any time. Be aware though that you will have to pay back any VAT you have claimed on items you still own at de-registration, eg: stock, computers and equipment.

For more information visit www.hmrc.gov.uk or give me a call on 01432 273400 / 07813 303849

VAT registration is a complex area, and the above article gives a simplified overview. For more detailed advice or for help registering please contact: sharon@kinderpocock.co.uk