Why VAT Registration is Required
Any business that sells goods or services and generates over £85,000 per year in taxable turnover is legally required to register for VAT. While this means that you must charge VAT on goods or services that you sell and pay this money to HMRC, there are also benefits that can make it beneficial for many businesses.
If you fail to register, you may be sent a ‘failure to notify’ penalty. You will need to pay the VAT you owe, and you may also incur a financial penalty as a result. In this guide, the experienced accountants at Sherlock & Co will explain when a business needs to register for VAT, how to do so, and the deadlines that you must meet in order to remain compliant with HMRC regulations.
When must a business register for VAT?
Any business with a turnover of more than £85,000 in a 12-month period must apply for VAT registration. You must register within 30 days after your turnover reaches £85,000 and if you do not, you will still owe VAT starting from this point. You may also incur a fine or other penalty as a result of this failure.
You must also register if you expect that your turnover will reach £85,000 within the next 30 days, in which case you must register before the end of this period. If your business has not reached £85,000 in turnover, you may still decide to register voluntarily, but there is no legal requirement for this.
You can register for VAT online by creating an account on the government portal, or by post by filling out a VAT1 and returning it to HMRC. Registering is relatively simple, but these deadlines mean that it is essential you get it right the first time. Any errors could lead you to pay your VAT incorrectly, or to miss the deadline, both of which can have negative consequences. If you are unsure about whether your business needs to register, or you would like support in making your application, don’t hesitate to contact our experts who can help you through the process.
How to charge and pay VAT
There are different VAT rates for different types of goods and services, which can make it difficult to calculate your total VAT liability. If your business qualifies for the flat rate scheme, or you are partially exempt, this can complicate things further and it is often worthwhile to consult an expert for advice.
The current VAT rates are listed below, along with some general examples of how they apply. However, tax regulations are intricate and you should not assume that these rates apply in all cases. Because this area can be extremely complex and confusing, it is best to seek professional support to ensure that you meet all of your legal obligations.
- Standard rate of 20% - charged on most items
- Reduced rate of 5% - some childcare items and home energy supplies
- Zero rate of 0% - some food and drink items, excluding alcohol
Some goods and services are exempt from VAT. If your business only trades in VAT-exempt goods, you do not need to register for VAT.
Most businesses now have to file their VAT returns online and you can automate aspects of this process using digital accounting software that integrates with HMRC’s online portal. You will be required to pay any tax you owe by the deadline on your VAT return, which may not be the same as your return submission deadline if you are paying by direct debit. Most businesses file their returns on a quarterly basis, although businesses that qualify for the payments on account regime must pay monthly.
In many cases, it is easiest and most cost-effective to have a professional accountant prepare your VAT return for you. This can help to ensure that your return is correct and thanks to their experience, our team may be able to help you save money on your tax liability.
Sherlock & Co can help
The expert chartered accountants at Sherlock & Co can guide you through the entire process of calculating, paying and planning your VAT and other taxes. The process of paying your VAT may be daunting without professional support, and employing the services of our team can help you to avoid errors that could prove costly and time-consuming.
We can also help you to implement processes that will streamline filing and paying your VAT return, and help you to choose accounting software that integrates with the government portal and supports compliance with Making Tax Digital regulations.