Understanding VAT registration

Thinking you may need to register for VAT? Tom Leigh from our accounts department explains that it's obligatory once you're over an £85k turnover. But you might want to consider it regardless.

The standard rate of VAT is currently at 20% in the UK, which means for sales, 20% is added to the sales price and this amount is payable to HRMC. For purchases, 20% is added to the cost, and this can be reclaimed from HMRC. The net position during the VAT period will result in either a payment or a reclaim with HMRC.

Your company needs to legally register for VAT when your taxable turnover exceeds £85,000 for the previous year or is expected to exceed £85,000 within the next 30 days. However, you may want to register for VAT before your turnover reaches this limit.

The UK is Making Tax Digital (MTD). This is already in place for VAT. You only need to be registered for MTD if your annual turnover exceeds £85,000. If you have voluntarily registered and your turnover is less than £85,000 you do not need to use MTD compatible software, such as QuickBooks.

Pros of being VAT registered:

• You can reclaim VAT on most of the products and services you purchase.
• Companies that voluntarily register for VAT can backdate the registration for up to four years, meaning that you could reclaim VAT on the expenses of equipment that you are currently using. Sufficient evidence may need to be supplied to HMRC.
• Other business may not want to work with you if you are not registered for VAT. If you charge VAT on your sales, it means they could reclaim it. If you are a small business this could be one way to enhance your sales.
• If you are in a reclaim position, it allows you to receive money from HMRC.
• Being VAT registered gives the perception of being a larger, more reputable company.

Cons of being VAT registered:

• VAT registered business are required to keep more stringent records. This is likely to increase bookkeeping and admin costs.
• If customers are not VAT registered, they will not be able to reclaim the tax charged on sales. This could result in a loss of customers as they become unhappy with being unable to reclaim the increased costs.
• It is likely that you will be left with a VAT bill that is due to HMRC if you regularly generate more VAT than what you can reclaim.
• HMRC can issue penalties if returns and payments are late and if there are errors in the returns.

VAT returns are normally completed every quarter. The VAT return and payment deadline is one month and seven days. There are a number of different schemes for VAT for which your business may be eligible, such as the Flat Rate Scheme.

If you need assistance with registering for VAT or completing returns, Page Kirk LLP will be able to help with all of your needs. Call 0115 955 5500 or email enquiries@pagekirk.co.uk.