One of the biggest questions that arises from small business owners in the IT industry is if they should register for VAT and if so when should they register. This is an area that is often misunderstood by business owners so it is important to take the time to clarify the key points surrounding this issue.
When You Must Register
A business must register for VAT (Value Added Tax) with HMRC if their VAT taxable turnover exceeds £85,000 – it is important to realise that this refers to turnover rather than profit so many businesses will need to do so. The business must register within 30 days or you may incur a fine. When you register for VAT, you will be sent a VAT registration certificate which will confirm your VAT number, when you will need to submit your first VAT return and payment and your “effective date of registration” which is the date that you went over the threshold.
You can also register for VAT voluntarily. This is a big decision and one which must be thought through carefully, but it can be a good idea for a few reasons. These include reclaiming VAT that you are charged by other businesses and also to increase your standing amongst the competition as it will help your company to appear large. There are also a few downsides to consider, however, such as higher costs which can lead to cashflow issues. Additionally, VAT registration requires a lot of paperwork which can be complex and time-consuming.
So, what are the responsibilities when you register for VAT? From the date of registration you must charge the right amount of VAT, pay any VAT that is due to HMRC, submit VAT returns and keep VAT records and a VAT account. Additionally, you are able to reclaim any VAT paid on certain purchase made before you registered.
How To Register
In most cases you will be able to register for VAT online with a few pieces of information. This will include your Unique Tax Reference (a 10-digit number sent when registering for Corporation Tax), your business’s bank account details, your company number and registered address and the details of any associated businesses within the last two years. There are a few VAT schemes available to businesses so you will want to take the time to find the one which is best suited to your circumstances.
It is important that businesses know when to register for VAT so that they do not get fined. In some cases it can be beneficial for a business to register even if they do not cross the £85,000 threshold, but this is a big decision and one which must be carefully considered to ensure that it is the right move for the company.