As a small business or a sole trader VAT can often be misunderstood leaving business owners feeling anxious and unsure if they are required to become registered and how to go about registering if they are.
In this guide we will take a look at all the information you will need to make an informed decision and see if registering for VAT is right for your business.
Do I need to register for VAT?
You will be required to register for VAT if over the course of the past 12 months your business’ total income (not to be confused with your business’ profit) meets or exceeds the VAT threshold (£85,000 for 2018/19 tax year).
You should also be aware that you will need to register for VAT within 30 days of your business turnover/income exceeding the threshold, otherwise you may incur penalties from HMRC.
Can I register voluntarily?
Whilst you must register for VAT if your income is over the threshold occassionally it could benefit your business to voluntarilly register for VAT. This can be a big decision which can have lasting implications for your financial health of the business, so it is vital that you think it through properly.
There are a few reasons why companies whos income is under the threshold choose to register for VAT voluntarilly. Firstly although they will have to charge VAT on your goods and services (otherwise known as output tax), you will also be able to reclaim VAT that your are charged by other businesses (this is know as input tax). Providing your input tax exceeds your output tax you will be able to reclaim the difference from HMRC.
Some businesses also choose to register for VAT in order to improve a companies reputation, appear larger than they actually are and increase your standing amongst competitors in the eyes of your clients.
How do I register for VAT?
Once you’ve come to a decision if you should become VAT registered, there are a few ways to register your business.
Most companies can become VAT registered online via the HMRC website (here ). This is a simple enough process, once you do this you will register for VAT and create a VAT online account.
Alternatively you can get in touch with ourselves and take advantage of our VAT registration service (including quaterly VAT returns), for further information check out our services section .
You will be required to register by post if:
• You would like to apply for ‘registration exemption’
• You’re an EU business ‘distance selling’ to the UK
• Your business imports goods from another EU country
• You’re joining the Agricultural Flat Rat Scheme
• You’re registering the diversions or business units of a body corporate under seperate VAT numbers
• You’re dispossing of assets on which 8th or 13th Directive refunds have been claimed.
Once you have registered via the post you will receive your VAT number from HMRC and can then sign up for a VAT online account.
Can I deregister?
If circumstances with your business subsequently change it may be possible to deregister your business. Whilst this should be a simple enough process, may businesses report difficulties in persuading HMRC to agree to this.
If your businesses turnover/income will not exceed the VAT threshold within the next 12 months you can deregister your business. HMRC should have no objection to deregistering your business if you registered voluntarilly and have’nt exceeded the threshold, however this may prove difficult if you previously went over the threshold.
You are obliged to deregister your business if it stops making taxable supplies altogether, or if it becomes part of a group. You may also have to deregister if the legal structure changes, or if the business is sold – although the new owner can choose to keep the registration number in some circumstances.
VAT registration is a big step for any business. Many business owners considering voluntary registration are put off by the prospect of increased paperwork and the potential for a hefty bill from HMRC. But VAT registration can also be a good financial decision. Make sure that you properly consider all potential outcomes, and seek advice should it be required before continuing.