There’s absolutely no doubt that you’ve heard of the term VAT. It’s constant throughout business and trade, whether you’re a consumer or a company. It stands for ‘value-added tax’ and is currently set at 20% having previously been 17.5%. However, today we’re going to be focusing on if you’re a business, what should you know about VAT, when you should register for VAT and the benefits of doing so.
The first most important thing you should know as a business owner or director is that once your company passes a certain threshold it is COMPULSORY to register for VAT. Currently, this turnover is set at a turnover of £85,000 in any 12 consecutive months. It’s important to note that this only applies to turnover and not gross or net profit. However, this figure tends to increase each year so it’s crucial to keep an eye out to note for any changes. For example, the threshold back in 2016 was £83,000.
So why should you register for VAT if you’ve not met or exceeded the threshold? Well, if your business is VAT registered. If you’re being charged VAT on goods or services, you can typically claim the VAT you’ve been charged on these back annually. Whereas if you’re not VAT registered you’ll have to pay the VAT you’re being charged without any chance of claiming it back. If your business is in a position whereby the services you’re selling don’t charge VAT, your business isn’t eligible to register for VAT.
It’s also important to note there are different rates when it comes to VAT:-
|This is the default VAT rate that is set by the government that currently stands at 20%.
|Set at 5%, this relates to the installation of safety and energy-saving products.
|Set at 0%, this relates to items bought in shops, the cost of public transport etc.
|This relates to your business if you don’t charge VAT on your services or goods and so you are VAT exempt.
|Outside the scope
|This relates to goods are services that are outside of the UK VAT system, for example, products being imported from the US.
If you want to go ahead and register your business for VAT you’re going to need to get your documents in order which include:-
- Your NI or National Insurance Number
- Documents containing information on all associated business covering the last 48 months.
- Bank accounts details for your business.
- If your business has been transferred, you will need information relating to this.
Currently, there are two main ways in which you can go about getting VAT registered. You can send off a paper form however the more popular and quicker method is through the HMRC website. Before you can register for VAT through the website you will firstly need to have registered yourself and the business to the government gateway. It’s also important as a business owner to note that if you’re dealing directly with another business (B2B) the other company has the option to retain the VAT whereas if you’re dealing directly with a customer this isn’t the case.
If you want to know more about registering for VAT and how it can affect your business get in touch with the team here at D&K Accounting.