by Nick Robinson | May 30, 2018 | Bookkeeping, Business, Company Formation, VAT
Should I Register for VAT?
One of the most common concerns among those running new and, believe it or not, not so new businesses is VAT. It is not well understood, and people are often confused as to whether or not they need to register. VAT is a complex area and the penalties for non-compliance can be severe so if you run a small business it is worth understanding what you need to do. That said if you find you do need to be VAT registered it is advisable to call in the professionals, and we can certainly help you with the whole process.
What is VAT and What Criteria Lead a Business to Register?
So, back to basics. VAT, value added tax, is a tax that is applied to goods or services sold by businesses operating in the UK. Whether or not your company is VAT registered, HMRC classifies all services and goos as either VAT exempt or VAT rated. There are different levels of VAT depending on what the goods and services are, which is why it helps to have someone in the know on your side. Most things are subject to 20% VAT but some can be 5% and as mentioned some items, like children’s clothing are charged at 0% VAT.
Currently, the legislation states that a business with a turnover of over £85,000 per annum must register with HMRC for VAT. This is the current figure and does changes; historically the threshold has increased rather than decreased, so many small businesses may not need to worry at this stage. However, the rules are stringent and you could be significantly fined for not registering within 30 days of hitting the limit, so you need to have your eye on the ball. Suddenly discovering your turnover is say, £120,000 at the end of the year, meaning it hit the £85,000 threshold in December would be a breach of legislation – so keep your eye on the figure.
Now, you can also register for VAT on a voluntary basis, maybe your turnover was £78,000, and you forecast growth, so you choose to register now rather than wait. You can register even if your turnover is nowhere near the threshold. Once registered you can claim back VAT on things your business purchased. Again this becomes more complex so an accountant might be your best bet.
Being under the threshold and opting for voluntary registration makes your intent for growth clear, but there can be downsides so you should take advice and think carefully. The administration will increase, and you may find you need to lift your prices if your primary customer base is members of the public (who are not VAT registered) as opposed to businesses that are.
The Bottom Line
VAT is not something you want to risk getting wrong, especially when you are over the legal turnover limit, so having the correct advice is vital. Not fully understanding and making a mistake is not seen as an acceptable excuse so you would still potentially face fines for wrong entries and calculation. Our team are all experienced in VAT and more than happy to help you make the right decision, so do give us a call today and see how we can help.