Updated on May 10, 2022
You must decide whether or not to register for VAT when starting a new firm or expanding. The decision is out of your hands if your turnover has exceeded £85,000 — you must register for VAT. To register, you must have a turnover of at least that amount.
Your clients must be charged at the proper VAT rate and you must submit quarterly returns and payments to HMRC once you have registered. However, the situation becomes more complicated if you are not VAT registered or if you are working with a customer who is not VAT registered.
As part of this guide, we explain how to charge and submit VAT in a variety of situations, as well as the actions you need to take to become VAT registered. We also go over the fines that HMRC may levy if the process is handled incorrectly. If you’re unsure about anything related to VAT, we strongly suggest consulting with an expert.
Why register for VAT?
Is it even worth it to register for VAT if you don’t need to? For a growing company, there are numerous advantages. Customers and suppliers may perceive you as a larger, more established company, which could help you win contracts or secure better terms from suppliers.
As a result, you can reclaim any VAT that you are charged by suppliers, regardless of whether or not you are registered.
In addition to the increased administrative and accounting costs you will incur to guarantee that you conduct VAT accounting effectively and precisely, you must make regular payments on time to HMRC regardless of your cash flow status.
In addition to imposing a price increase on your clients, registering for VAT means that you are essentially raising your prices. This may have an impact on client relationships even though they are entitled to reclaim VAT.
How to register for VAT
If you’ve made up your mind to register for VAT, you can do so by submitting an online application to HMRC. After receiving your VAT number, you can use it on your invoices and HMRC reports.
It is possible to determine whether or not to register based on your past or projected sales. Within 30 days of attaining the £85,000 threshold, you must apply for registration.
When planning ahead, you can register at any time up to 12 months before you achieve the threshold, but you must do so within 30 days of hitting the mark to be eligible.
If you apply to register before or after the threshold, HMRC will establish your Effective Date of Registration (EDR).
Recall that the £85,000 must represent taxable revenue, which is the provision of goods or services that are subject to value-added tax (VAT). All non-VAT-rated products and services are excluded from the total.
Three VAT systems are available, each with its own set of reporting and payment requirements:
HMRC receives your VAT returns and payments four times a year under the annual accounting arrangement.
A year’s worth of accounting is kept in this way.
Ahead of the due date for your next VAT return, pay your VAT bill in full in advance.
each year, file a single VAT return
You pay HMRC the difference between your sales and purchase invoices when using the cash accounting method. It is your responsibility to disclose these statistics and pay HMRC even if the invoices have not been paid.
You’ll be able to do the following:
When your customers pay you, you must pay VAT on the amount they have paid you.
You can claim back VAT on your purchases after you’ve paid your supplier.
Businesses with a projected annual revenue of less than £150,000 will be eligible for the flat-rate plan. It is common for businesses to pay or claim back VAT based on the difference between the VAT they charge their customers and the VAT they pay themselves.
Using a flat-rate pricing structure:
HMRC collects VAT at a set rate from you.
the difference between what you charge your consumers and what you owe the government is yours to keep
Only certain capital assets exceeding £2,000 are eligible for VAT recovery.
Once you’ve completed the registration process and obtained your VAT number, you must use that number to charge VAT on all of your invoices.
Even if a product or service is VAT-rated, you cannot charge VAT on your invoices until you have registered. HMRC will levy you a penalty fee if this occurs.
The same holds true if you are VAT-registered yet fail to charge VAT when it is due.
It makes no difference if your customer isn’t registered for VAT when you send out invoices. However, you are required to collect VAT and make a payment to HMRC. No VAT refunds will be given to consumers who aren’t registered with you; they’ll have to pay the whole cost, including VAT.
HMRC requires you to pay the full amount of VAT that you have charged each quarter when you file your quarterly report.
Related: VAT in the food industry
Purchases made from companies who are VAT registered will come with a VAT invoice that includes both the company’s tax identification number and the total amount of VAT charged. You are obligated to pay the vendor the total amount listed.
To get back the VAT you paid, the only way is to register with HMRC as a VAT payer. Input tax is recorded on your VAT return and refunded.
Non-registered companies are not required to provide you with a VAT invoice, and even if the goods are VAT-rated, you must not pay any VAT that is mistakenly represented on your invoice. HMRC will impose a penalty on you if you pay VAT in incorrectly.
Read More: A guide to correcting VAT errors
Penalties for VAT registration and charging errors
HM Revenue and Customs (HMRC) has a wide range of penalties for registration and charging. To ensure that you meet the registration deadlines, you must be informed of the essential dates. Whether or not you applied to register before or after you crossed the barrier will determine your Effective Date of Registration (EDR). If you don’t apply on time, you could face fines for being late.
If you have a Penalty rate registered, you will be penalised.
five per cent are not more than nine months behind schedule.
10 percent of those who are more than 9 months but less than 18 months late
More than 18 months overdue, 15% of the population is still waiting.
A fine of £50 is the minimum penalty.
Late fees are also incurred for charging VAT too soon. Customers can’t be charged VAT if you haven’t registered for VAT yet, according to the law. The fine for charging VAT while you are not registered can be as high as 100% of the VAT on the invoice. In addition, there is a 10% penalty for charging VAT before the due date. Even if you notify HMRC that you made a mistake, you will still be subject to this fine.
Support from Accounts and Legal
This is a quick rundown of the VAT registration and management guidelines you should be familiar with. When it comes to VAT, our tax experts are here to help.
Please call us at 0207 043 4000 or email us at [email protected] for additional information. An quick accounting estimate is also available through this website.