Registering for VAT, and How to Prepare
Today, we're diving into a topic that might seem a bit overwhelming at first glance, but trust me, it's not as scary as it sounds: getting VAT registered in the United Kingdom.
Now, I know what you're thinking – taxes and paperwork, ugh! But don't worry, I'm here to guide you through the process and make it as painless as possible.
Why VAT Register at all?
First things first; let's clear up why you might need to become VAT registered.
Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution. In the UK, if your business's taxable turnover exceeds a certain threshold (which is currently £85,000), you're legally required to register for VAT.
What is turnover you might ask? Great question!
In the context of VAT registration in the United Kingdom, "turnover" refers to the total sales or supplies your business makes, usually over a specific period, typically a year. This turnover determines whether your business needs to register for VAT with His Majesty’s Revenue & Customs (HMRC).
For VAT purposes, the term "taxable turnover" specifically refers to the total value of goods and services you sell that are subject to VAT. This excludes any sales that are exempt from VAT or outside the scope of VAT. Here's a breakdown of what's included and what's not:
Included in Taxable Turnover:
Standard-Rated Supplies:
These are sales of goods and services that are subject to the standard rate of VAT (currently 20% in the UK). The VAT collected on these supplies contributes to your taxable turnover.
Reduced-Rate Supplies:
Some goods and services are subject to a reduced VAT rate (currently 5% in the UK). The value of these supplies is also included in your taxable turnover.
Excluded from Taxable Turnover:
Exempt Supplies:
Certain supplies are exempt from VAT altogether. This includes things like most financial services, medical and educational services, and postage stamps. Exempt supplies don't contribute to your taxable turnover.
Outside the Scope Supplies:
These are transactions that are not subject to VAT at all. Examples include sales of non-business assets or transactions outside the UK. There are some more rules applicable if you deliver to customers overseas, so please get in contact to find out more.
Zero-Rated Supplies:
While zero-rated supplies are subject to VAT at a rate of 0%, they are still included in your taxable turnover. However, you don't actually collect any VAT on these supplies.
So, when determining whether your business needs to register for VAT, you need to calculate your taxable turnover by adding up the value of your standard-rated and reduced-rated supplies.
If this calculated turnover exceeds the current VAT registration threshold (which is £85,000 as of my last update in September 2021), then you're required to register for VAT.
Keep in mind that VAT rules and thresholds might change over time, so it's always a good idea to check with the latest guidance from HMRC or consult an accountant who is up-to-date with the current regulations.
Getting Prepared: The Basics
Before you dive into the world of VAT, take a deep breath and follow these simple steps to prepare yourself and your business:
Understand Your Obligations:
Wrap your head around what VAT actually means for your business. It's not just about adding an extra percentage to your prices; it involves maintaining accurate records, submitting VAT returns, and potentially dealing with more complex financial management.
You have to submit VAT returns through MTD now, and you will need to use software to keep accounting records.
Organise Your Financial Records:
If you've been keeping your financial records in a shoebox under your desk, it's time to upgrade to a more organised system. Consider using accounting software – it will make your life so much easier when it comes to tracking income, expenses, and VAT.
Don’t get me wrong, I love shoeboxes and especially the shoes that come in a shoebox. But not for record keeping 😊
Choose the Right VAT Scheme:
The UK offers different VAT schemes, like the Standard VAT Scheme, Flat Rate Scheme, and Cash Accounting Scheme.
Each has its own rules and benefits, so pick the one that aligns best with your business's size and needs. Speak to us to determine which one is the best for your business, as they all have technical bits.
Set Up Your VAT Account:
Make sure to the HM Revenue & Customs (HMRC) website and create your online government gateway VAT account. This is where you'll manage your VAT affairs, submit returns, and communicate with the tax authorities.
If you already have a Government Gateway account, add VAT as a tax type so that you can see all your submissions, pay your Vat and manage your details.
Handy tip: If you are like me and forget stuff, include your email address and ask HMRC to send you electronic reminders. You can even go old-school and get reminders through the post. Watch the environment though 😊
Get Professional Advice:
Don't hesitate to consult with an accountant like us who's well-versed in VAT matters. They can help you navigate the complexities, ensure you're fully compliant, and even save you money in the long run.
Preparing Your Client for VAT Registration:
If you're a business owner considering becoming VAT registered, you're probably wondering how to prep your clients for this change. Communication is key here – you want to ensure a smooth transition without any surprises. Here's what you should could do:
Notify Your Clients:
As soon as you decide to become VAT registered, inform your clients about the upcoming change.
Explain how it might impact your pricing and invoicing methods. People respond well to change if it is communicated and they feel prepared.
Update Invoices and Contracts:
Adjust your invoices to include your VAT registration number and the applicable VAT rate. Also, review your contracts to make sure they reflect your new VAT status.
Educate Your Clients:
Some of your clients might not be familiar with how VAT works. Take the time to educate them on why you're registering, how it might affect them, and any changes in the invoicing process.
Plan for Pricing Adjustments:
Depending on the nature of your services or products, you might need to adjust your pricing to account for the added VAT. Be transparent with your clients about these changes.
Make sure you give enough time/notify them well in advance. Give your clients enough lead time before the VAT registration takes effect. This way, they can adjust their budgets and expectations accordingly.
Becoming VAT registered might seem like a big leap, but with the right preparation, it's a manageable step that can actually benefit your business in the long run.
Remember, you're not alone in this journey – there are resources, experts, and even communities out there ready to help you navigate the VAT landscape.
So, take a deep breath, arm yourself with knowledge, and get ready to embrace the world of VAT registration. Your business will thank you for it!
Stay tuned for more tips, advice, and insights from your friendly neighbourhood accountant. And as always, if you have any questions, don't hesitate to drop them in the comments below. Happy VAT registering! 📊💰
Disclaimer: This blog post is for informational purposes only and should not be considered as professional financial or legal advice. Consult with a qualified accountant or tax professional for advice tailored to your specific situation.