The advantages of VAT registration are:
The drawbacks of VAT registration are:
VAT is a type of consumption tax added to the cost of most goods and services for both B2C and B2B markets. There are three rates of VAT: standard rate, reduced rate and zero rate. VAT is not charged on exempt or out-of-scope items.
As a small business owner or self-employed worker, there are a few key aspects you need to understand about VAT. These are:
We explain these in greater detail in our VAT guide.
There are instances whereby VAT registration is mandatory, such as when your VAT taxable turnover exceeds the current threshold of £85,000. If you're not legally required to register for VAT, you'll then need to weigh out the benefits (enhances image, reclaim VAT) against the downsides (administrative burden, unexpected VAT bills).
You need to register for VAT if:
You need to register for VAT within 30 days of fulfilling any of these conditions.
VAT is simpler than it is usually made out to be, but you need to approach it step by step and crunch the numbers involved to find your best way to deal with it.
This is because, in addition to the normal way of paying VAT (known as the Standard Rate Scheme), HMRC also offers the Flat Rate Scheme, the Cash Accounting Scheme and the Annual Accounting Scheme for small businesses with turnover under a certain amount.
Each of these change your tax liability and how you pay in different ways. We shall deal with them at the end of the article.
The Standard Rate Scheme is the essence of VAT however, and it neither overly complex nor particularly difficult to get your head around.
At first glance, VAT can seem like one more aspect of your business that adds to your administrative tedium. Yet, as a small business owner, you want to run your business in the most tax efficient way possible-and VAT is a common area where business owners are losing out.
Even if you've hired an accountant, you need to have a good grasp of the essentials.
Below, we'll dive into an aspect of VAT that business owners often raise questions about the flat rate VAT scheme. We'll run through the basics, touch on recent regulatory changes and share our answers to frequently asked questions about the scheme.
During the time between submitting your application and waiting for your VAT registration number, you won't be able to issue VAT invoices or to show VAT as a line item on your invoices.
To get around this issue, you can include VAT in the invoice total amount-without indicating VAT as a line item or showing it in your invoice. For instance, if you're charging a client £100 for a service rendered, you'll invoice the client for £120 to account for the standard rate VAT of 20%.
When you've received your VAT registration number, you can then reissue the invoice for £100 (and include £20 VAT as a line item).
You should charge VAT when your business becomes VAT registered-whether the registration is mandatory or voluntary.
VAT registration is mandatory when:
If you're thinking about registering for VAT voluntarily, these are the main benefits and downsides you should consider:
There are various ways to pay your VAT bill.
Online or telephone banking (Faster Payments) and CHAPS payments are processed on the same day or the next working day.
Direct Debit, Bacs payments, standing order (only for businesses using the Annual Accounting Scheme or Payments on Account), online payments (by debit or corporate credit card) or payments made at your bank or building society are processed on a three day cycle.
Generally, if your client is a business customer, the place of supply will be where the client is based but if they are a non-business customer, the place of supply will be where you are based.
For most contractors, this means that your place of supply is generally where your customer is based.
If your place of supply is in another EU country, you do not need to charge UK VAT - providing they are a registered business in their country. You will need to request their VAT registration number and display this on your invoices. It will also need to be reported to HMRC within your VAT return and a separate EC sales list.
If your place of supply is in a country other than the EU then you do not need to charge VAT as it is outside the scope of VAT entirely. No further actions are needed for this other than not including VAT on your invoices.
If you are looking to check if you need to charge VAT or need assistance with any other VAT matters, contact one of our VAT experts today.
With our calculator, you can work out your VAT in just a few quick clicks.
VAT, or Value Added Tax is a consumption tax that is applied to most goods and services. While the standard rate (20%) applies in most cases, there are items-such as children's car seats and sanitary products-that are charged at the reduced rate of 5%. Using the slider on our calculator, you'll be able to calculate the VAT and gross or net prices for different VAT rates. If you're unsure about the correct rate you should apply, refer to HMRC's resource on VAT rates.
If your business can be classified under more than one sector because you provide different types of services or products, you'll then use the percentage that applies to the majority of your services or sales, and apply that to your total sales.
Let's say you're running a hair salon-cum-restaurant business. If 70% of your sales is derived from providing hair and beauty treatments, you'll then apply a VAT flat rate of 13% (for hairdressing and beauty treatment services) to your total turnover.