What is VAT?
VAT is an indirect tax imposed on goods and services at each stage of production, starting from raw materials to final product. VAT is charged on things like: – Business sales – Hiring or loaning goods – Selling business assets – Commissions – Items sold to staff – Business goods used for personal reasons and so on. I will not give you a headache and provide too much information, you don’t need to be a VAT expert. I will only give you a brief overview and if you need to know more you can check the government website http://www.gov.uk
Are you required to register?
As a start-up company, probably not yet! But you must register if your business’ taxable turnover (sales/invoices/billings or whatever you want to call it) is over £85,000 in a 12 month period or you expect to go over the threshold in the next 30 days.
Before you register
If you are not registered , YOU MUST NOT charge VAT on your invoices!
Even if you are under the threshold for registration you can still apply for voluntary registration. Be aware that the government might require additional information to support your application like invoices issued, customer contracts, orders etc.
But if you are over the threshold, you MUST register!
How do you register?
Simple! Online and you don’t need an accountant. Before you start, check you have all the information about your company (name, address, bank account etc) then follow the link to register https://online.hmrc.gov.uk/registration/newbusiness/business-allowed or copy and paste into your browser. Use the same login you used when you set up your account. Make a note of your login information as you will use the same portal to submit your VAT returns.
After you register
AFTER you have received the confirmation of registration (generally they send you a letter at the company’s registered address) you must:
- Charge VAT on goods and services.
- May reclaim any VAT you’ve paid on business related goods or services.
- Must submit VAT returns (usually every 3 months).
- Must pay VAT by due date – Generally the deadlines for submitting the return and paying HMRC are the same, one calendar month and 7 days after the end of an accounting period. For example for the quarter from 1st June to 31st Aug, you will have to submit your VAT return and pay by 7th Oct.
DO NOT add VAT on your invoices until you receive confirmation of registration!
Reduced rate (5%)
Zero rate (yes! 0%).
Check which rate you must apply.
You cannot charge VAT on exempt or out of scope items (like insurance, postal stamps, health services provided by doctors etc).
If you sell only VAT exempt goods and services you cannot register for VAT.
After you register, it might be best to appoint an accountant to calculate and submit VAT returns on your behalf. It tends to get very complicated especially if you are selling/buying overseas.
There are hefty surcharges and penalties if you don’t send your return or don’t pay on time! I hope you find the article useful, keep checking my site, subscribe to my newsletter and follow me on Twitter or Facebook.
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