Everything you need to know about registering for VAT

Updated on July 19, 2022

Taxes like VAT might be confusing for small business owners who are already overburdened with paperwork and unfamiliar with HMRC’s requirements.

We’ll go through the basics of VAT, including what it is, how it works, and when you’ll need to register.

A quick introduction to VAT

‘Value Added Tax,’ as the abbreviation is known, is levied on the majority of UK retail purchases of goods and services.

If you’re not registered with HMRC, you can’t charge VAT to your customers when you sell something.

When VAT is charged on a sale, it is referred to as a “taxable sale” or “VATable sale”. Sales that are not subject to UK VAT are not considered taxable.

If your company’s yearly taxable sales exceed £85,000, you must register it with HMRC.

When do you need to register for VAT?

If your annual taxable sales surpass £85,000 or will do so within the next 30 days, you must register for VAT.

It’s called “mandatory registration” when that’s what’s happening here.

Even if you’re not quite ready, you may still want to sign up.

When you register for voluntary VAT, you can claim back input VAT on the cost of goods and services that you buy.

Voluntary VAT registration has the drawback of requiring businesses and individuals to pay a tax that they cannot recoup, especially if they are individuals or small businesses. As a result, your customers may be forced to pay more for the same goods and services that you do.

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How to register for VAT in the UK

Most people do their VAT registration online these days.

In the event that HMRC accepts your application for registration, they will issue you a certificate that includes your company’s unique VAT number.

Filing your VAT return using FreeAgent

Accounting data you enter each quarter is used by FreeAgent to automatically prepare Making Tax Digital-compatible VAT returns. You can file your VAT return directly to HMRC from the program when it is due.

Find out more about VAT in FreeAgent

Managing the transition period

In most cases, there is a lag time between when you submit your application and when you receive your VAT certificate and registration number. Any sales made after the date of your registration will be subject to output VAT, but you won’t be able to use an official VAT invoice until your registration number comes. Once you’ve applied for VAT registration, you’ll need to add 20% to the total amount of all of your invoices during the interim period until you’re officially registered.

You’ll need to reissue any invoices you sent to consumers during the interim period after you have your VAT registration number. The purpose of this is to ensure that your clients have valid VAT invoices and are able to claim input VAT on the items or services they have purchased from you,

HMRC or an accountant should be consulted whenever you have questions concerning VAT and the impact it has on your company’s financial health.