Do I need to be VAT registered?
The answer is generally YES if:
- Your business products or services are taxable.
- Your turnover (sales) exceeds the statutory registration limit.
Should I register voluntarily for VAT?
Again the answer is YES, even if your turnover is below the statutory registration limit.
There can be advantages for you to register voluntarily if:
- The costs related to the running of your business include VAT
- Most of your customers are VAT registered.
- Your supplies are mainly zero rated for VAT purposes.
If your answers are NO then it you should consider delaying registration until you have to.
Advice regarding VAT Registration Issues:
- Never add VAT to your sales invoices UNLESS you are registered. It is a criminal offence to do so.
- Do not delay registration if meet the requirements for registration. If you do then you will incur penalties and interest charges. You may also have to pay over VAT which you may not be able to recover from customers.
Most registered traders simply add VAT, where appropriate, to their sales and pay this over to H M Revenue & Customs (HMRC), minus any VAT input tax paid to suppliers, on a quarterly basis.
For small businesses this can create cash flow difficulties. You may have to pay over VAT added to sales invoices that has not yet been paid by your customers.
To help with this HMRC have created a number of “Special Schemes”. The most helpful are:
- Cash Accounting – If your turnover is within the limits for the scheme you will only need to pay VAT to HMRC when you have been paid by your customers. This is a significant advantage for businesses that have granted extended payment terms to their customers.
- Flat Rate Scheme – Traders eligible to join this scheme can simplify their VAT accounting by applying a flat rate percentage to their sales and paying this amount to HMRC.
- Annual Accounting – With this scheme you agree an annual liability, based on the previous years’ figures, and pay this over in installments. At the end of each year a final return is submitted and any balance due is paid or overpayment refunded.
- Special Schemes for Retailers – Ordinarily registered traders are required to keep detailed records of every transaction. For retailers this could prove to be very time consuming. Therefore, affected businesses can use one of the schemes set up with retailers in mind.
Whether you should be registered for VAT or not or whether you should use any of the special schemes, depends on your individual business circumstances.
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