Businesses are responsible for collecting VAT from end consumers on behalf of the government – they collect VAT from their customers then pay it over to HMRC deducting any VAT they may have paid. Read on and find out more about the thresholds, legal requirements and how to register.

How Do You Know You Should Register for VAT?

A business must reach a certain turnover before it is legally required to register to itself for VAT. Currently this threshold is where your taxable turnover is £85,000 (this changes every year on the 1 April so it is worth keeping an eye on it).

What is Taxable Turnover? This is the value of your sales that would be relevant for charging 20%.  To calculate whether you should be VAT registered you would need to exclude any sales that would be exempt from VAT that are not exempt from VAT (such as insurance or some financial services). 

You must monitor your turnover if you feel you are approaching the threshold because the threshold of £85,000 is based on your previous 12 month period on a rolling basis.

You must also register for VAT if you are going to exceed the £85,000 threshold in the next 30 days, for example if you win a large contract and you know this will push your turnover over the VAT registration threshold.

Can You Register for VAT if you are below the Threshold of £85,000?

Yes, you can apply to register voluntarily and many businesses do opt to do this.

Advantages

  • It will give the impression that your business has a turnover of more than £85,000 making you appear larger;
  • You can claim back VAT on your purchases, regardless of your sales, helping to reduce costs while you get your business off the ground (generating tax refunds).

Disadvantages

  • HMRC can ask for information before releasing any tax refunds;
  • If your customers are individuals who cannot claim back VAT a voluntary VAT registration will mean you need to 20% more which may make you uncompetitive.  Or if you are unable to raise your price you will need to pay VAT from what you sell which will impact your profit margin;
  • You will need to keep detailed books and submit VAT returns so you may not feel ready to deal with this level of administration.





Are there different rules for Limited Companies and the Self Employed?

No, the rules exactly the same whether you own a Limited Company .

How do you Register for VAT?

If you have decided that you want or need to register for VAT then you can do this online here.  You will need to create a Government Gateway account and provide HMRC with certain pieces of information about you and your business.