Wondering what are the pros and cons of being VAT registered? Read our article to find out more about what is means to register your business for VAT.
(5 minute read)
Today’s tip will cover:
- Pros and cons of being VAT registered
- Important guidelines for registering to the HMRC
Introduction
Have you ever wondered if you should register your business for VAT?
On this post, you will find an easy yet practical summary of where to start.
Firstly, it is important to know your VAT taxable turnover. The term refers to the total value of sales your business makes that is subject to tax.
According to gov.uk, “Businesses have to register for VAT if their VAT taxable turnover is more than £85,000. They can also choose to register if their turnover is less than £85,000.”
The question remains: Should I register my business for VAT?
As stated above, businesses are required to register if their turnover exceeds £85,000. Other factors include taking over someone else’s business or taking the business premises of a VAT registered business of a similar trade.
However, a business can voluntarily register to the HMRC. Here are a few benefits:
- You can reclaim your input VAT on business purchases;
- It will be beneficial to your customers who are also VAT-registered, as adding VAT will not make your supplies more expensive;
- If you sell zero-rated supplies you might be repaid;
- You can reclaim input VAT on certain goods and services received before registration;
- Other reclaims are possible for exempt supplies such as Buy-to-lets.
There are also some disadvantages to keep in mind:
- As a sole trader, all of the businesses you run will be subject to VAT;
- You will have additional responsibilities such as invoicing, paperwork and managing VAT returns;
- In addition to this, you will also be responsible for any errors such as late submissions or late payments, and subject to penalties;
- Your goods and services will be more expensive to non-VAT-registered customers.
Am I running a business for tax purposes?
HMRC can refuse to register a business if it’s not an economic activity. This means that the activity in question must be “for remuneration”.
For example, a company that produced hay and maintained outbuildings on its owners’ land was not found to be running a business (Babylon Farm Ltd v HMRC [2019] TC7356). On this basis, it was disallowed its input VAT claim.
So if there is any doubt on whether a business constitutes an economic activity and can register for VAT, the HMRC runs a series of tests.
Useful resources
When registering for VAT, consider, also:
You can register as an intending trader before making any supplies.
You can claim back Pre-registration input VAT on goods that are less than four years old at the time of registration.
Do not charge any VAT until you receive the registration certificate and VAT number.
Since April 2022, businesses have been required to apply for Making Tax Digital, and to keep digital records of their VAT.
Using the Flat-rate scheme, you could pay a fixed percentage of your turnover to HMRC.
Second hand businesses can also apply for the Margin scheme, and farmers to the Agricultural Flat Rate scheme.
Consider whether you will make returns annually, monthly or quarterly.
You could account for VAT on a cash receipts and payments basis.
When invoicing customers, make sure you meet the invoicing requirements.
If supplying for outside the UK, consider rules for overseas trading.
Make sure you are aware of filing and paper obligations and deadlines.
We hope you’ve enjoyed our guide on getting started on VAT for business. If you need expertise help, make sure you seek tax advice with our specialists.
Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190. Sending an e-mail is simple too, just fill out the short form below and we’ll get back to you!
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