5 Things To Know About Registering For VAT
After being in business for a while, you’ve probably come across the question, “Are you VAT registered?”.
While you don’t have to register for VAT, it can sometimes feel as though it’s something you should be doing for your business.
Before deciding whether to become VAT registered or not, we thought it would be helpful to compile this list of 5 things you should know about registering.
1. The VAT threshold
While you can voluntarily register for VAT, it’s not set in stone that you need to until you reach the £85,000 threshold (figure correct as of June 2023).
This £85,000 is made up of your taxable sales.
If you suspect you will pass this amount within the next 30 days, you must register for VAT.
2. Voluntary registration
Voluntary registration is when a business registers for VAT before hitting the threshold. Businesses often do this to help ease their cashflow as it enables them to claim their VAT back on costs.
However, this isn’t always the best option, so seeking professional advice is important before making any decisions.
3. The different VAT schemes
Typically, businesses choose to use one of the following schemes:
- The flat rate scheme - when using this scheme, you pay a percentage of your turnover to HMRC; this percentage is based on a set rate by industry. This scheme can only be used by businesses with a turnover of less than £150,000. However, you cannot claim VAT back on the purchases you make.
- Cash accounting scheme - you need to pay HMRC the VAT you have received within the quarter. This scheme can only be used by businesses with a turnover of less than £1.35 million. However, you cannot claim VAT back for any invoiced that have not been paid yet.
- Annual accounting scheme - rather than making quarterly returns, you can make advanced payments towards your bill throughout the year. You file one VAT return and pay the remaining balance (or reclaim overpayments). This scheme can only be used by businesses with a turnover of less than £1.35 million.
4. Registering for VAT online
Most businesses choose to register directly with HMRC. Before you can register, you will need to create a Government Gateway account. Once you have an account, log in and start the process.
You will need to have the following information on hand to complete the registration:
- Business registration details
- Business bank account details
- National insurance number or unique taxpayer reference
5. Penalties for not registering
If your taxable sales are less than £85,000, there is no penalty for not registering for VAT. If you choose to register, it’s on a voluntary basis.
However, if your taxable sales are above this, the penalty amount will vary. It depends on how much VAT you owe and how late your registration is. Typically, it will be between 5-15% of the VAT you owe, with a minimum penalty of £50.
Don’t forget, any VAT that you owe will be added on to the penalty amount, even if no VAT was charged to the customer at the time.
It has also been known for businesses to be charged with a failure to notify penalty, or a civil evasion penalty, on top of the late registration penalty.
All of these penalties can add up, so it’s in your best interest to register for VAT if you believe you are getting close to hitting the threshold.
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