A Complete Guide to Registering for VAT for Essex and London Businesses
One of the challenges for small and medium-sized businesses is whether to register for VAT or not. What qualifies for value-added tax and what is exempt or has a zero rate? This can be complicated and often changes depending on economic circumstances.
Here we look at registering for VAT online and when you should consider it for your Essex or London business.
What is VAT?
Value-added tax or VAT is paid on certain goods and services and the standard rate is 20%. Some goods and services are either exempt (for example, financial services and certain health care products) or have a reduced rate.
You need to pay VAT if the taxable turnover of your business reaches the threshold of £85,000.
Who Needs to Register for VAT?
Companies with a taxable turnover of more than £85,000 in the last 12-month period are required to pay VAT. Failure to register with HMRC can lead to a large fine.
You don’t need to register if your turnover is below this. Good news: this means you won’t have to charge VAT on top of usual client fees. However you cannot claim back VAT on any goods or services that you incur as part of your business expenses. You will still be liable to pay corporation tax on your business profit.
Can I Voluntarily Register for VAT and Why Should I?
You can register voluntarily but most businesses choose not to do so. There are some good reasons for doing this however.
If you are near the threshold and are likely to go over, it’s a helpful move to register early. It can save you time and a lot of problems later on.
You can also claim back VAT on your business expenses if you do register.
Your company will appear more professional and established if you can show your customers that you are VAT registered. VAT registration can help your small business to be taken seriously.
How Do I Register for VAT?
Whether you are self-employed or you have a limited company, the process for registering for VAT is the same.
Most people register online through the government gateway portal as it’s the easiest option. If you haven’t used this before, just register with your email to create your 12-digit gateway ID and password. Then sign into your new account and register for VAT. You will need your business details and information about your turnover.
Some goods and services are either exempt or partially exempt from VAT. It’s worth checking here to find out if you fall into this category.
You cannot add any VAT onto your invoices until you have received confirmation and your registration details from HMRC. At the same time as notification, they will also give you the date when your first VAT return needs to be submitted. It usually takes up to about 30 days to receive the registration details and notification. Once you’re registered, you’ll be expected to pay VAT on all qualifying fees that you charge. So, an invoice to a client/customer for eligible goods/services totalling £100 would be £120 including VAT at the standard rate. £20 VAT is then owed to HMRC.
If you cannot register online, you will need to complete a form called VAT1 and send this by post.
How Do I Submit a VAT Return?
All VAT returns have to be submitted now through the making tax digital (MTD) process. That means they need to be given electronically through certain accounting software. Find out more here.
VAT returns should normally be submitted no later than one month and seven days after the end of an accounting period.
VAT Schemes
There are three different schemes for paying VAT. It’s a good idea to discuss which is the best for your business with your accountant. They are:
Annual accounting VAT scheme: You pay one amount of VAT once a year.
VAT flat rate scheme: This allows you to apply a fixed rate percentage related to your gross turnover and is a simplified approach.
VAT cash accounting scheme: You only pay VAT once you receive payment from your customers.
Do You Need an Essex Accountant?
VAT can become complex, especially as your business grows. At Neil Smith Accountancy, we help Essex and London’s businesses optimise their VAT bills, only paying what is needed.
Want to find out more? Contact our professional team today.
