Most people pay VAT in their day-to-day transactions, but how exactly does it affect business owners? Is it worth registering for VAT voluntarily, and when do businesses need to charge it?
We receive a lot of enquiries about how this area of tax works, which is why we have put together this guide. In this article we will answer some of our clients’ most frequently asked questions about VAT.
When should I charge VAT?
You only need to charge customers VAT if you run a VAT-registered business. VAT is charged on a range of things including most goods and services, commission and items sold to staff.
Most products and services are charged a flat rate of 20% VAT, while others are charged at a reduced rate. Some products such as books, food and non-alcoholic drinks are zero-rated, meaning no VAT is payable on them.
A full list of VAT rates and exemptions is available on the HMRC website.
Do I need to register for VAT?
If your business has a turnover of more than £85,000 per year or you expect your turnover to exceed that threshold in the next 30 days, registering for VAT is compulsory.
As soon as you know your business has or will hit the £85,000 mark, you should sign up on the HMRC website as soon as possible to ensure you stay compliant.
You will need to start paying VAT from your registration date onwards.
Should I sign up voluntarily?
Even if you do not exceed the threshold, you may want to consider signing up for VAT voluntarily.
Many business owners decide to register their business for VAT because it allows them to reclaim VAT on goods and services purchased from other businesses.
However, this would place a greater administrative burden on your shoulders. Your accountant may be able to help you work out if voluntary registration is worth it, as well as alleviate the extra workload it brings.
How do I register for VAT?
Registering for VAT is free, and you can usually sign up on the HMRC website or via post. To sign up, you will need to have several pieces of information to hand, including:
- your Government Gateway user ID and password
- your National Insurance number or unique taxpayer reference
- details of other businesses you’ve owned in the past two years
- your business bank account details.
If you prefer, you could appoint an accountant to register for VAT and deal with HMRC on your behalf.
During registration, you will also be prompted to let HMRC know which VAT accounting scheme you plan to use.
Most businesses use standard VAT accounting, but there are other options available, such as annual VAT accounting and the simplified VAT flat-rate scheme.
Speaking to a tax expert can help you determine which scheme would suit your business best.
How do I submit my VAT returns?
As of April 2022, most businesses will need to submit their VAT returns using software compatible with Making Tax Digital (MTD) for VAT.
That means you need to store your records digitally throughout the year. Some software can calculate your VAT returns automatically – but you may need to make some adjustments.
As a VAT-registered business, you must:
- keep records of sales and purchases
- keep a separate summary of VAT
- issue VAT invoices.
Your records need to be accurate, complete and readable, and must be kept on file for at least six years.
How do I stay compliant?
As a business owner, it’s important to stay compliant with VAT rules. However, VAT is notoriously complicated – and keeping accurate records and submitting returns every three months can be time-consuming.
Working with a VAT accountant can help ensure you get your returns right, as well as free up more hours in the day for you to focus on running your business.
At Venthams, we can support you with everything from registration and submitting returns to dealing with HMRC enquiries on your behalf. As tax experts, we will help you stay on track with your obligations, as well as make sure you claim the right amount of VAT back on your return.
Want to find out more about what VAT means for your business? Get in touch with us today.