Updated on May 27, 2022
Learn how to become registered for VAT, which VAT scheme to register for, and how to charge VAT for your goods and services – plus how to pay VAT to HRMC and the deadlines you need to meet.
Registration for VAT and subsequent compliance with the rules for VAT charge and payment are both challenging tasks. HM Revenue and Customs (HMRC) requires that you register for the relevant VAT scheme, know when and how to charge VAT, and submit the appropriate paperwork to them (HMRC). A lot of money might be lost if your VAT isn’t done correctly.
What is VAT?
Value Added Tax (VAT) is a tax that is added to the price of products and services that a business’s consumers pay when they purchase or are invoiced. The company then acts as a tax collector for HMRC by remitting the VAT to them. In other words, if your business charges £100 for a product or service, the consumer will pay £100 plus VAT of £20 (at the typical VAT rate of 20%), totaling £120.
In the VAT accounting period, your business pays HMRC the amount of VAT revenue it has collected every three months. Even if you have no VAT to pay or recover, you must file a VAT Return.
Not all goods and services are subject to the regular VAT rate. VAT is not applicable to certain items, including books, children’s clothing, and dentistry treatments. Products and services like solar panels and gas boilers have a lower VAT rate than other products and services. VAT rates for products and services can be found in HMRC’s VAT rules.
Only companies with a yearly revenue over the HM Revenue & Customs level are required to register for VAT in the UK (HMRC). In order to recoup whatever VAT you’ve paid on business purchases and expenses, it is necessary to charge VAT on the goods and services you provide once registered.
Do I need to register for VAT?
You must register for VAT as soon as your company’s yearly revenue exceeds the current VAT level of £85,000 (as of April 2017). Voluntary registration for VAT is possible for companies with a lower annual turnover. There are a few reasons to register for VAT before the VAT threshold has been crossed.
It sends a great message about your firm if you are registered for VAT. Businesses having a VAT number are seen as more established because they have a higher annual revenue of at least £85,000, making them a more reliable partner.
VAT can be reclaimed from purchases made by your business. VAT is applied to all purchases made on behalf of your business. VAT-registered businesses can offset the VAT they’ve paid (known as ‘Output VAT’) against the VAT they have earned (known as ‘Input VAT)..
How to become VAT registered
You must register for VAT with HMRC whether or whether you’ve elected to do so freely or your turnover has crossed the VAT threshold. The vast majority of businesses elect to file their VAT returns electronically these days. Instead of registering and submitting your VAT returns yourself, you might hire an agent or accountant to do so.
In order to apply for a registration exception, be based in the EU and sell to the UK via distance marketing, or import products from another EU country, you must register by mail if you can’t do so online.
To begin the process of registering for VAT, go to the HMRC tax registration website.
When logging in, select ‘I have an account—login’ if you have already registered with HMRC. Please click the ‘Create an account for me’ button to begin the process of creating a Government Gateway Account.
Scroll to the bottom of your business account screen and choose ‘Find a tax, duty, or scheme.’ Enter your Government Gateway ID and password to continue.
Continue after you have selected ‘VAT and VAT services, eg European Commission Sales List’ from the drop-down menu. Next, select ‘VAT’ from the drop-down menu and click ‘Continue.’
It’s also possible to register for VAT by mail. To register for VAT, download the form VAT1 from HMRC, fill it out, then mail it back to HMRC.
What documents do I need to register for VAT?
Registration for VAT is extremely simple for new businesses and those who haven’t been in business for an extended period. To register for VAT, you’ll need the following:
As soon as you register your firm for corporation tax, HMRC gives you a unique ten-digit reference number.
Details of a company’s registration, such as its CSC and registered address. On your certificate of incorporation from Companies House, you will find this.
Details of your company’s bank account for reclaiming VAT payments.
All relevant information from the last two years about any related firms.
If the firm has been moved or acquired, this information should be included.
Your VAT application will be processed once it has been submitted. As soon as you’ve registered, you’ll receive a VAT4 document, which is the VAT registration certificate, which includes your VAT number.
What VAT scheme to register for
Make certain that the VAT scheme you select is appropriate for your business before beginning the registration procedure. Depending on the sort of business, each of the three VAT options is best suited.
Most firms use the standard VAT or accrual VAT model. Each quarter, you’ll pay any VAT collected (called “Input VAT”) and claim back any VAT paid (called “Output VAT”). As a result, small firms may face cash flow issues as a result. You still have to pay HMRC the VAT amount you invoiced in that quarter even if you have not received payment if you have issued a VAT invoice that has not yet been paid.
Paying HMRC only the VAT income you’ve really earned in that quarter is the benefit of cash accounting, which is better suited to smaller enterprises. On the other hand, if you have unpaid invoices, you can’t get VAT back. The VAT Cash Accounting Scheme: learn more about it.
The Flat Rate Scheme (FRS) can be joined at any time following the initial registration for VAT. Industries have varied VAT percentages to pay HMRC, all lower than the typical 20% VAT. For example, a computer repair shop may have an FRS of 10.5 percent, while a pub may have an FRS of 6.5 percent. If your yearly revenue is less than £150,000, you are not eligible to join this programme. As a result, even though you can charge your customers 20% VAT, you pay HMRC a flat rate (such as 10.5 percent), which means that you pay less VAT to HMRC than you collect. Only purchases over $2,000 in capital expenses qualify for a VAT refund; all other purchases are not eligible. Find out more about the VAT Flat Rate Scheme by reading this article.
How do I charge VAT?
You must charge VAT on any things and services you sell once you have registered for VAT. Review the VAT rates at HRMC to ensure you’re charging the correct VAT rate.
On the invoice or receipt, you’ll also need to include the amount of VAT collected and the applicable VAT rate. Invoices must include your VAT number, the name and address of your firm, a unique invoice or receipt number, the invoice date, and a description of the goods or services you’re delivering.
How do I pay VAT to HMRC?
Every three months, you must submit a VAT return to HMRC detailing all of your sales and transactions, as well as any VAT you owe HRMC and any VAT you’re eligible to claim back. Even if you don’t owe or claim any VAT, you must still file a VAT return. Send a VAT return by logging into HMRC. To file your VAT return online, you’ll need your VAT number and a Government Gateway account.
To meet both the VAT return and payment deadlines, you have one month and seven days after the end of the three-month accounting period to file both documents. With the support of HMRC, you can file and submit your VAT return online: