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VAT is a complex tax which businesses have to deal with as they grow.
When do you need to register for VAT? - If your total sales in the previous 12 months exceeds the VAT threshold, currently £85,000, then you must register. You should also register if your turnover is likely to exceed £85,000 in the next 30 days. You may even choose to register voluntarily if you make significant VAT inclusive purchases and sell mainly to VAT registered customers.
What are the main VAT schemes available?
If you do decide to register for VAT, you should be aware that there are a number of schemes available. These are the 3 most popular.
On the standard scheme, the amount of VAT you owe (or reclaim) is based on the date of invoices. So if you invoice someone for £1,000 + VAT – that VAT is deemed to be owed to HMRC at the end of the quarter in which you dated the invoice. This can cause cashflow problems for small business.
Cash Accounting Scheme
This solves the cashflow problems associated with the Standard scheme. VAT is deemed to be owed at the end of the quarter in which you were actually paid for the invoice (and on the other side – when you paid for your purchases)
Flat Rate Scheme (FRS)
This scheme can save you a lot of money in certain industries. You get given a flat-percentage rate dependent on the industry you are in. Lets assume 11%. You then charge VAT at the usual rate but you only pay over to HMRC 11% of your Gross (meaning inclusive of VAT) turnover. You can’t claim back any VAT on your purchases (with a few exceptions), but you don’t hand over all of the VAT you receive to HMRC.
How to register for VAT - There are currently two ways to register for VAT:
Registering online - In order to gain access to the VAT online services, you must first have registered for HMRC Online Services or the Government Gateway.
Sending a paper form - Alternatively, you may register using form VAT1 which is available for download from HMRC’s website.
Whichever route you choose, all newly VAT-registered businesses are required to submit their VAT returns and any VAT payments electronically. So once your certificate of registration has come through, register for VAT Online Services with HMRC online.
Purchases made prior to VAT registration & reclaiming the VAT - Once your business is VAT-registered, you may be able to recover some historic VAT you’ve incurred. There are time limits and conditions which differ depending on whether you’re dealing with goods or services.
Registered office: 61 Friar Gate, Derby, Derbyshire, DE1 1DJ
Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414
Registered to carry out audit work by the Association of Chartered Certified Accountants - auditregister.org.uk 8011438
61 Friar Gate Derby DE1 1DJ