Value Added Tax (VAT) is a fact of life for businesses. If you sell goods or provide services, you’re almost certainly going to be dealing with this consumption tax in one way or another.
But while we’re all familiar with paying VAT as customers, being on the other side as a business owner collecting and remitting that tax to HMRC requires a different approach altogether.
Failing to properly register for VAT and meet the associated compliance requirements can land you in hot water with HMRC, sometimes resulting in penalties.
In this guide, we’ll walk you through the key steps to get your business VAT-registered.
You’ll learn how to determine if you’ve reached the mandatory registration threshold, choose the right scheme for your needs, complete the application process, and stay on top of your ongoing obligations.
Determining Your VAT Registration Threshold
As of April 1, 2024, the VAT registration threshold has increased to £90,000.
This means that if your business’s taxable turnover exceeds £90,000 in the last 12 months or is expected to exceed this amount in the next 30 days, you are required to register for VAT.
It’s important to note that the taxable turnover includes all the goods and services you sell that are subject to VAT, excluding any exempt or zero-rated supplies.
This can include income from your main business activities, as well as any additional revenue streams, such as rental income or investment income.
Registering for VAT
Once you’ve determined that you need to register for VAT, the process involves several key steps:
Gather the Necessary Information
You’ll need to have your business details, such as the legal name, trading name, registered address, and contact information, as well as your estimated annual turnover and the date you expect to exceed the VAT registration threshold.
Choose Your VAT Scheme
There are several VAT schemes available, each with its own rules and requirements. The most common schemes are the Standard VAT Scheme, the Flat Rate Scheme, and the Cash Accounting Scheme.
Standard VAT Scheme
This is the default scheme, where you charge the standard rate of VAT (currently 20%) on your sales and can claim back the VAT you’ve paid on business purchases.
It provides the most flexibility, but also requires the most detailed record-keeping.
Flat Rate Scheme
This scheme simplifies the VAT calculation process by allowing you to pay a fixed percentage of your turnover as VAT, rather than tracking individual transactions.
The percentage varies depending on your business sector, ranging from 4% to 16.5%. This can be beneficial for businesses with low VAT-able purchases.
Cash Accounting Scheme
This scheme allows you to account for VAT on the basis of when you receive payment from customers, rather than when you issue an invoice.
This can be particularly helpful for businesses with cash flow concerns, as you only pay VAT once the money is received.
To be eligible for the Cash Accounting Scheme, your business’s annual taxable turnover must be less than £1.35 million. This scheme can simplify your VAT reporting and improve your cash flow management.
When choosing your VAT scheme, consider factors like your business size, the nature of your transactions, and your cash flow needs. Double Point can help you determine the best option for your company.
Complete the Registration Process
You can register for VAT online, by post, or through an agent, such as an accountant. The process typically involves submitting a VAT1 form and providing supporting documentation.
Obtain a VAT Number
Once your registration is approved, you’ll be issued a unique VAT registration number, which you’ll need to display on invoices and other business documents.
When to Consider Voluntary VAT Registration
For many business owners, the idea of voluntarily registering for VAT may seem counterintuitive.
After all, isn’t the whole point of having a registration threshold to avoid the administrative burden and cost of dealing with this consumption tax?
Well, not necessarily. In fact, there are some compelling reasons why voluntarily registering for VAT can actually benefit your business – even if your sales are currently below the mandatory £90,000 turnover mark.
Let’s take a closer look at when voluntary VAT registration can make good financial sense:
Reclaiming VAT on Business Purchases
One of the main advantages of voluntary VAT registration is the ability to reclaim VAT on purchases.
For businesses with substantial operating expenses – like equipment, materials, or outsourced services – this can make a noticeable difference in costs.
For instance, a manufacturing business purchasing machinery or a tech startup investing heavily in technology can reclaim VAT on these expenses.
VAT reclaims can be particularly helpful in industries with high overheads, effectively lowering operational expenses and improving cash flow.
Enhancing Business Credibility
VAT registration can also add credibility, particularly when dealing with larger clients and suppliers.
For many established businesses, VAT registration serves as a sign of stability and professionalism. A small or new business that is VAT-registered may be seen as more reliable and growth-oriented.
This can help secure contracts with larger companies that prefer to work with VAT-registered suppliers.
Voluntary VAT registration, therefore, doesn’t just fulfil tax obligations; it can also act as a strategic move to build trust and legitimacy, giving your business an edge in competitive markets.
Primarily Serving Business-to-Business (B2B) Clients
VAT registration can be particularly beneficial if your business operates in a B2B setting.
Other VAT-registered businesses can reclaim the VAT you charge, meaning that VAT won’t impact their costs.
For instance, a consulting firm or design agency that primarily serves other businesses can invoice with VAT without increasing the financial burden on clients, as they can claim it back.
This also aligns your business with client accounting practices, creating smoother transactions and even positioning you as a more professional and established partner.
Preparing for Future Growth
If your turnover is close to the VAT registration threshold, registering voluntarily can save you from the scramble that comes with mandatory registration.
The current threshold stands at £90,000, and if you’re nearing that, early registration allows you to integrate VAT into your financial systems without disrupting day-to-day operations.
This gives you a head start on tax planning and ensures that when your revenue does cross the threshold, you’re already compliant and prepared for more streamlined growth.
Exporting Goods and Services Outside the UK
Businesses involved in international sales can benefit from VAT registration through the zero-rating of exports.
When you sell goods or services to clients outside the UK, you can apply a 0% VAT rate to those exports, meaning clients aren’t charged VAT. At the same time, you can still reclaim VAT on related UK expenses.
This can improve your competitiveness in foreign markets and streamline finances, making it a smart move for businesses focused on exports.
When Voluntary VAT Registration May Not Be Suitable
Despite the benefits, voluntary VAT registration may not be ideal for every business.
Adding VAT to your prices could make you less competitive if your primary clients are non-VAT-registered, such as individual consumers.
For example, a small retail business serving individual customers might find that adding 20% VAT could discourage sales.
In cases where a business primarily targets end consumers, it may be more advantageous to avoid VAT registration until required, as it helps keep prices lower and more competitive.
Ongoing VAT Compliance
Once you’ve registered for VAT, there are several ongoing compliance requirements you’ll need to be aware of:
Submitting VAT Returns
You’ll need to submit regular VAT returns to HMRC, typically every quarter, reporting the VAT you’ve charged on sales and the VAT you’ve paid on purchases.
Maintaining Accurate Records
Keep detailed records of all your VAT-related transactions, including invoices, receipts, and any adjustments or corrections.
Updating HMRC on Changes
Inform HMRC of any changes to your business, such as a change in address, legal structure, or the nature of your activities, as these may affect your VAT obligations.
Paying VAT on Time
Ensure that you pay your VAT bill to HMRC by the due date to avoid penalties and interest charges.
Wrapping Up
Whether your company is heading towards the £90k registration threshold or you’re weighing up the pros of voluntary registration, understanding the ins and outs of VAT can be tricky.
The good news is, you don’t have to go it alone. The Double Point team has helped countless businesses like yours successfully register for VAT and stay fully compliant.
We can work with you to choose the right VAT scheme, maximise available credits and deductions, and develop smart cash flow management practices.
Get in touch with us, and we’ll handle your VAT compliance effortlessly, helping you maximise savings and take the burden off your shoulders – so you can focus on running your business.
