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How To Become Vat Registered

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If a business in the UK achieves a turnover of over £85,000, they must register for VAT. If your business is approaching this level of turnover or has exceeded it recently, read on to understand how to become VAT registered in the UK.

What is VAT Registration?

VAT registration is the process of formally registering your company with HM Revenue and Customs (HMRC) for the purpose of ensuring compliance with Value-Added Tax regulations. (VAT)

VAT is a tax that is levied on the majority of the goods and services that are sold in the UK.

Upon registration you will be assigned a unique VAT registration number and required to charge VAT on your sales (also known as output tax), and reclaim VAT on your business purchases (also known as input tax). You will also need to submit regular VAT returns and comply with all VAT regulations.

How to Complete VAT Registration

VAT registration itself isn’t a difficult task, simply follow the steps outlined here; however, fulfilling all the financial requirements and details as a result of the registration will take time and effort.

There are different VAT schemes available, so be sure to check with your accountant which one is right for your business.

When you have prepared all the above details what you need to do is:

  • Confirm that you have exceeded the £85,000 turnover
  • Complete the necessary VAT1 form. To get the VAT registration forms, please go to GOV.UK and download them.
  • Always be sure to fill out all of the relevant fields accurately. Business structure and owner contact information are particularly important. You will also need to know your expected annual taxable turnover.
  • Include any supplementary documents, such as official certificates of incorporation, with the paperwork that you submit.
  • Select the VAT scheme that you want to use; Standard, Flat Rate, or Cash accounting.
  • Send your application to HMRC by post or online.
  • HMRC will check your eligibility and get back to you once they have completed their verification, a VAT registration certificate will be issued to you with your new VAT number.

Once all of the steps above are complete, you will be running a fully VAT registered business! You are now required to include your VAT number on all of your sales invoices and stay on top of record-keeping and submitting timely VAT returns, which can be completed digitally.

What Happens After You Register?

Once you are done with the registration, you have some responsibilities to fulfil.

They are:

  • Apply value-added tax (VAT) to sales invoices: All invoices and receipts sent to your customers will need to display your VAT number. This indicates that you are a registered business and means that your customers can reclaim the VAT paid if applicable.
  • Charge the right VAT rate: VAT rates vary for certain goods and services. Standard, reduced and zero rates are in operation – so make sure you know which ones apply to you here: https://www.gov.uk/vat-rates
  • Ensure that records are kept:  For a period of at least six years, you will need to keep your VAT records. This includes the amount collected and paid and is easily managed via digital accounting software.
  • Make sure you file your VAT returns on time: Once registered, businesses must submit quarterly VAT returns. This means that you submit a form online that shows HMRC how much VAT has been collected and paid. If VAT collected is greater than that paid, you must pay the difference to HMRC.
  • In the event that you are subjected to a VAT investigation, you will need to produce your records for inspection, so keep on top of this.
  • Keep an eye on VAT in other countries and familiarise yourself with the regulations if you are doing business globally in the EU.

It’s important to stay on top of your VAT obligations. Whilst this does require active work and record keeping, it is a legal requirement, so it pays to do this well.

If you miss your reporting deadlines or fail to keep accurate records, you could be subject or a fine from HMRC if your errors are discovered in audits and inspections.

Why Does VAT Registration Matter?

Registering for VAT is the law and can lead to financial penalties if you fail to meet these requirements once your business meets the criteria to charge and reclaim VAT.

Reclaiming the VAT that you have paid out on business purchases can add up to considerable sums. Without VAT registration, this money stays as a hidden cost in your expenses ledger.

VAT registered firms appear professional and portray credibility and trust to clients. It indicates that you’re operating your business above a threshold level which again, can all improve the way customers perceive you and your business.

VAT registration can open up new business opportunities too. For example, some Government tenders or large business enterprises will only purchase from VAT registered suppliers so that they can reclaim VAT too.

It’s fair to say then that VAT registration can unlock benefits, meet legal compliance requirements and can improve the reputation of your business.

VAT Schemes Available

  • Standard VAT – Must charge and account for VAT on sales and purchases
  • Flat Rate Scheme – Pay fixed % of turnover as VAT using less records
  • Annual Accounting – File one return and payment per year instead of quarterly
  • Cash Accounting – Pay VAT based on cash flow rather than invoice dates

You should choose the right scheme for your business activities and size. ,

    • Standard VAT: This is the default position to take when you register for VAT. VAT collected less any VAT paid is paid to HMRC on a quarterly basis via a VAT return.
    • Flat Rate Scheme: In this approach, which is particularly suited to smaller businesses, you would pay a fixed percentage of VAT based on your industry. This is in contrast to tracking every single input and output for VAT.
    • Cash Accounting Scheme: This means that you only pay VAT when you have received funds from the client, rather than at the point the invoice is issued. This is a benefit to businesses who have clients that pay them late – and can only be used with a turnover of £1.35 million.
  • Annual Accounting: This option reduces the need for quarterly VAT returns with only one required per year. Again, turnover needs to be less than £1.35 million for this option to be available, and those who use it will need to ensure that they keep enough funds available to settle the larger annual tax bill in one go, rather than the smaller quarterly instalments that the standard VAT method uses. 

Record-Keeping Tips for VAT Registered Businesses

Along with the duty of registering for VAT comes the obligation to keep records that are both thorough and accurate. The procedure may appear to be intimidating, but with a few straightforward tactics, it is entirely manageable.

Go Digital

It might be difficult to retain records using paper-based methods. For the purpose of recording and monitoring transactions, you should instead make use of accounting software, Excel spreadsheets, or other digital tools. Using digital tools makes it simpler to:

  • Make and share reports.
  • Find any information that is required in a hurry.
  • Create a safe backup of your documents using either the cloud or external disks.

Many software systems have been developed for the purpose of preserving VAT records. Look for ones that are within the budget of your company and meet the requirements of your organisation.

Capture Everything

Record each and every transaction, including sales, purchases, VAT charged, VAT paid, and any other transactions.

  • Details like dates, references to transactions, and information about customers and suppliers should be included.
  • Documentation in support of the claim, including scanned or photographed receipts, invoices, and contracts
  • Notes on any modifications or mistakes that have been made

This detailed strategy eliminates any potential gaps in knowledge or records that can lead to problems in the future.

Stay Organised

It is essential to have a well-organised system since there is so much data being captured. Store digital documents in folders that are organised according to the year and the month. Dates and reference numbers should be included in the names of the files.

For the purpose of establishing order in paper documents, binders, dividers, and unambiguous labelling should be utilised. It is imperative that the personnel is aware of the filing system in order to facilitate the retrieval of data.

Store Securely

The VAT records you keep contain confidential information about your company.

To make sure that they are safe, you should:

  • Protect digital information and operating systems with a password
  • Use cabinets that are lockable for the storage of paper documents
  • Limit access to your documents – so only those required can see them
  • Create backups of documents in a number of different safe places

Review Regularly

You should set reminders to review your VAT records on a regular basis in order to identify any inaccuracies or missing information. It’s far easier to spot and correct if you do this regularly rather than only once a year.

Things to look out for are anomalies between invoices issued and paid before VAT returns are submitted.

VAT Frequently Asked Questions

What are the VAT thresholds and rates to be aware of

When it comes to VAT registration and charging VAT, there are specific criteria and rates that apply. Awareness of these helps to guarantee that the following is accurate:

A taxable turnover of £85,000 is required for obligatory VAT registration. A taxable turnover of £83,000 is required for deregistering if the business was previously registered. A taxable turnover of £1 million is required for deregistering. In place of quarterly, the threshold for monthly VAT returns has been changed.

What is the standard VAT rate?

  • The standard rate of 20% is the rate that is generally applied to most goods and services.
  • There is a reduced rate of 5% applicable to certain essential goods, such as children’s car seats and mobility aids.
  • The zero rate of 0% applies specifically to certain essential items, such as the majority of groceries and prescription medication.

What VAT rates apply for the hospitality sector?

As a result of COVID-19, the following rates have been temporarily reduced to 12.5%. This discount applies to meals at restaurants, accommodations, attractions, and other hospitality services

The five percent discount is applicable to food and beverages that are taken away from restaurants, cafés, and caterers.

Always check GOV.UK for the most up to date VAT rates in all sectors.

How Long Does VAT Registration Take?

These are the usual time frames to allow for VAT registration:

  • It can take up to 45 days for HMRC to review and accept applications.
  • It will take at least 14 days to get your VAT registration proof.
  • 1 to 2 hours to get the details you need and fill out the form.

It’s best to give yourself two weeks to get organised, look into plans, make records, etc. You can try to speed things up if needed by using the online application process over the postal one, respond quickly if you need to supply further information, and ensure that you answer the questions on the forms fully and accurately.

What Is Taxable Turnover?

Taxable turnover is the total value of goods and services sold that are liable for VAT. The figure includes all standard, reduced, or zero rated sales made by the businesses. The amount of taxable turnover for the business will have to submit VAT returns annually or quarterly.

Taxable turnover can be calculated by:

  • Finding the sum of all goods and services sold over the last 12 months.
  • Exclude any sales that are exempt from tax such as financial services, commercial property rental and education.
  • Split up the sales that remain into 20%, 5% and 0% tax brackets, then add together the total value of them over 12 months. This is your total taxable turnover.

Finally,

If you’re a business that needs to understand how to become VAT registered, here is a quick recap of the key things to be aware of:

VAT registration is a legal requirement for UK business when their taxable turnover exceeds £85,000. This means that they will need to register for VAT and start charging VAT on goods and services, and reclaiming VAT paid out.

Registration is easy and can be completed online at hmrc.gov.uk. Businesses that have completed their VAT registration need to keep accurate financial records which can be simplified using digital accounts software.

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