VAT is a consumption tax charged on the sale of most goods and services by VAT registered businesses. Understanding when you need to register, what your responsibilities are and how VAT affects cash flow can help you avoid costly mistakes.
A business must typically register for VAT if its taxable turnover has breached £90,000 in the last 12 months, is expected to breach £90,000 in the next 30 days, or if it is based outside the UK and supplies goods or services to the UK.
HMRC define taxable turnover as the value of everything sold that is not exempt (typical examples include medical care or education) or outside the scope of UK VAT (for example some non-business or charitable income).
Businesses with taxable turnover below £90,000 can choose to register voluntarily, provided it makes, or intends to make, taxable supplies. Voluntary registration may permit VAT to be recoverable on costs, but may require VAT to be charged on supplies.
To register for VAT, a business must submit a VAT1 to HMRC containing the required information (basic information such as the trading address, and more specific information like the estimated level of taxable income and whether it expects to be in a repayment position).
When a business registers, HMRC will confirm:
- the VAT number
- when to submit the first VAT Return and payment
- the ‘effective date of registration’
It will have certain responsibilities and opportunities if it registers for VAT, such as to:
- charge VAT at the prevailing rate (standard, reduced or zero)
- recover VAT where possible (the rate of recovery is dependent on the supplies made by the business)
- issue VAT invoices
- keep records
- file VAT returns
Keeping up to date with VAT rules is essential if a business is going to avoid harsh penalties. Engaging a tax advisor, such as a member of Smailes Goldie’s VAT team, can help mitigate penalties in certain circumstances.
There are a number of indirect taxes, including VAT, which can all impact a business, such as insurance premium taxes, environmental taxes and stamp duty. These taxes are governed by complex regulations that change on a regular basis.
Our tax team can work with any type of business to review indirect tax liabilities and provide tailored technical advice to see whether the VAT position can be optimised. We also offer full VAT compliance support by producing and submitting returns.
For a free, no obligation consultation, please contact us here or email Ben Tetley (bentetley@smailesgoldie.co.uk).
