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VAT Registration Options

Value Added Tax (VAT) is a difficult subject for most and knowing if, when and what VAT scheme to register for can be a minefield. In this article, we’ll help you decide whether you should register for VAT and what scheme is best for your business.

What are my options?

Most clients have three options:

How do I know which is best for me?

Generally, when deciding whether to register and on what scheme, you need to look at your turnover, the type of clients you have, and the expenses you can claim VAT on.

The table below indicates when it might be best to register for a particular scheme, however, this should only be used as a guide, nothing beats getting direct support from one of our  accountants in finding out about VAT.

Turnover

VAT- able expenses

Client type

Suggested VAT option

Less than £83,000

Less than 1.5% of turnover

Mostly non-VAT registered customers

Don’t register for VAT

Any

More than 1.5% of turnover

Mostly VAT registered customers

Register for standard rate VAT

More than £83,000

Less than 1.5% of turnover

Any

Register for Flat Rate VAT

When do I need to register for VAT?

Legally, you must register for VAT when:

  • Your VAT-taxable turnover (the total of all sales that aren’t exempt from VAT) exceeds the current threshold within a 12-month period

  • You expect your VAT-taxable turnover to exceed the threshold in a single 30-day period

  • You only sell goods or services that are exempt from VAT, but you purchase goods to use in your business to the value of more than the threshold from VAT-registered suppliers in the EU

You need to register for VAT within 30 days of meeting any of these criteria.

If over the threshold, when do I need to start charging VAT?

When your turnover reaches the threshold in a rolling 12 month period, you must start charging VAT from the first day of the second month after you exceeded the threshold.

For example, if on 30th June 2017, your sales for the previous 12 months are £85,000, then your VAT registration date will be 1 August 2017.

When you expect to exceed the threshold in a single 30-day period, you must start charging VAT immediately.

What happens if I don’t register for VAT when I should?

If you’re late in registering, HMRC will retrospectively register your business from the date you should have started charging VAT. You’ll need to add VAT to all sales made from this retrospective date, regardless of whether you actually charged your clients VAT. HMRC may also issue you with a financial penalty.

Can I register for VAT voluntarily?

If your VAT-taxable turnover is less than £83,000 over a rolling 12-month period, you can register for VAT on a voluntary basis.

What are the advantages of registering voluntarily?

Once registered for a standard rate of VAT, you’ll be able to reclaim the VAT on your expenses. It might also make you more reputable as business and enable you to attract bigger clients.

What are the disadvantages of registering voluntarily?

If the majority of your clients aren’t VAT registered themselves, you may want to avoid registering for VAT voluntarily. As soon as you register, you’ll need to add VAT to your invoices, adding 20% to the overall price your client pays. Your clients who aren’t VAT registered, won’t be able to claim this back as an expense, which can be an issue for some of them. As a result, you’ll either become more expensive to these clients or you’ll need to swallow the VAT cost yourself.

How often do I need to file a VAT return?

You’ll need to file a VAT return every 3 months. If you do not file a return when it is due, you’ll incur a penalty from HMRC.

If you’re a Crunch client, our software automatically generates your VAT return. You’ll be notified when a return is ready. Simply let us know you’re happy with it and we’ll file on your behalf.

Will it affect my ability to monitor my profit?

When you’re VAT registered, it can be more difficult to keep track of your cashflow and profit. However, as a Crunch client, we’ll calculate your VAT liabilities automatically, so you’ll always have an up-to-date picture of your accounts.

Last Updated: 12 Sep 2017 09:08AM BST
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