Your Guide on VAT Registration for Businesses.
By Robyn Jones
If you’re a business owner, and you’re looking for advice on whether you should be VAT registered or not. This guide will cover everything you need to know about VAT registration for businesses.
We’ll cover what VAT scheme is most suitable for your business, how to apply, the different VAT schemes available, and VAT payment deadlines – and how to do a VAT registration check.
Continue reading to learn more…
- Should my business be registered for VAT?
- What different VAT schemes are there?
- What are the deadlines for paying and submitting my VAT returns?
- What Next?
Should my business be registered for VAT?
There are two basic reasons for your company (or business) to become VAT registered with HMRC:
- You register voluntarily – if it is more beneficial for you to be VAT registered than not. More on this in just a second.
- You have reached the government turnover threshold and must register. The current threshold to become VAT registered is £85,000.
If your business has a Turnover of this amount or above. For any consecutive 12-month period. You’re obliged (in the U.K) to register for VAT and submit regular VAT returns.
This means, if you supply or purchase vatable goods or services, you must provide details of any tax deductions to the HMRC.
If your company has a turnover of below £85,000, you can still be registered for VAT. This is beneficial if you are looking to trade with larger VAT registered businesses. Why? This is because other businesses will be able to claim VAT on any vatable goods or services sold by yourself.
Another reason you may choose to voluntarily register for VAT is because the goods or services you sell are zero-rated – or exempt from VAT.
An example may be if you owned a business selling Aircraft repairs and maintenance. The business would not have to charge any VAT as this is a zero-rated supply.
However, you’d still be able to claim back any VAT on expenses where VAT has been charged – resulting in a refund from HMRC.
What different VAT schemes are there, and which are most suitable for my business?
The most common VAT scheme used by business owners to prepare and submit their VAT returns is the accrual or standard VAT scheme.
This scheme takes the VAT at 20% or 5% directly from the invoice or receipt the date of the invoice. This also includes the VAT on sales invoices, minus the VAT taken from any expense invoices that will be due to HMRC.
Cash Accounting Scheme
Another popular VAT scheme used for companies with in-frequent payments, or longer payment terms, is the cash accounting VAT scheme.
This scheme allows you to take the VAT from the date of payment which has either been received or made. This is very beneficial for cash-flow because it allows VAT payments (or rebates) to be calculated on a real-time basis.
For example; With standard VAT, if you sold goods to David Smith for £10,000+ VAT, you would pay the VAT to HMRC based on the period you raised the invoice.
Under the cash accounting scheme, the VAT relating to this invoice would only be payable when you received payment from David Smith.
To be eligible to enter this scheme, there are certain thresholds you must be above or below. For more information surrounding the different thresholds for entering the VAT cash accounting scheme, the HMRC have published a basic overview here: Gov.uk VAT Cash Accounting Scheme Eligibility
Annual Accounting Scheme
The Annual accounting scheme is not as commonly used as the above schemes. Most VAT registered businesses will submit returns to the Tax Office quarterly or monthly.
The VAT Annual Accounting scheme allows you to submit one return per year. However, you must still pay four instalments throughout the year based on a rough figure from previous years. With a final amount to make up any difference, if any.
To clarify; Advance payment towards the annual bill must be made either based on an estimate of the VAT that the HMRC thinks you’ll owe on previous returns.
Flat Rate Scheme
This scheme is used for smaller businesses who specialise in specific goods.
Business types are given flat rate percentages directly from HMRC. The percentage of gross turnover is the amount paid to HMRC.
For example, the flat rate percentage for an advertising business is 11% for the current year. If you were to invoice a customer £20 + VAT (£24). The flat-rate payment would be 11% of the £24, equalling £2.64.
For more information regarding this scheme, check the HMRC guidance by visiting their website: Gov.uk VAT Flat Rate Scheme. Alternitively, get advice from us here at Northern Accountants.
What are the deadlines for paying and submitting my VAT returns?
The most important deadline to submitting and paying your VAT bill on time is the 7th of the month. If you are submitting quarterly or monthly VAT returns, your payment and return submission will be due exactly one month and seven days after your VAT period.
If you are submitting a VAT return with the period ending the 31st of January 2020, your payment and filing deadline will be the 7th of March 2020.
2. Late Payments
Late submission and payment of your tax bill can result in fines from HMRC. On the other hand, if you are due or expecting a VAT refund from HMRC, there is no deadline to have received this by.
You will be due a VAT rebate if your VAT input (expenses) are higher than your VAT output (sales).
This means, that you’ve either had a higher amount of expenses, or you have zero rates or VAT exempt business sales.
More information on zero-rated goods and services can be found on the official government website: Gov.uk VAT Business VAT Rates
4. Paying The HMRC
One simple way to pay the HMRC is to pay your VAT bill via direct debit.
This means that HMRC will automatically take the amount you owe, close to, or just after the 7th of the month.
Alternatively, you can make manual payments to HMRC through the Gov website. I have attached a link to their payment page here: Gov.uk Pay VAT
Registering for VAT has become a much simpler process using the newly updated HMRC website.
Don’t forget, the VAT registration deadlines for payments and submissions will be 1 month and 7 days after your VAT period end date.
To avoid any late filing or payment fines, it is always best to keep your taxes in order.
If you need help in filing or calculating any VAT returns, we are more than happy to offer some friendly advice.