Should I be registered for VAT?

Apr 14, 2023 | Business tax

Should I be registered for VAT?

We often get asked the question, ‘Should I be registered for VAT?’ by our clients. As a business owner, your obligations to HMRC aren’t always as clear as they should be.

Once your business meets certain criteria, you must register for VAT. For others, it’s voluntary, but there are still good reasons to do so.

So should you be registered for VAT? Let’s find out.

In a hurry? Here are the key points:

  • The current rate of VAT is 20% – this applies to most goods and services.
  • The reduced rate is 5%.
  • Zero-rated goods aren’t taxed.
  • If your taxable profit is over £85,000 for the last 12 months, you must register for VAT.


When should I be registered for VAT?

Over the last 12 months, if your total VAT taxable turnover exceeded £85,000, you must register for VAT.

And, if you expect your turnover to go over the threshold in the next 30 days, you must also register for VAT. This date is known as the effective date of registration – it’s the day you signed up, not the date your turnover exceeded the threshold.

Turnover is the total value of all items not exempt from VAT, such as zero-rated items, goods you hire or loan to customers, and business goods used for personal use.

If you meet all the following requirements, you must register for VAT (regardless of your VAT-taxable turnover):

  • you’re based outside the UK
  • your business is based outside the UK
  • you supply any goods or services to the UK (or expect to in the next 30 days).


What are the benefits of registering for VAT?

Registering for VAT voluntarily may not be high on your priority list – but that doesn’t mean you shouldn’t do it.

Here are some reasons why:


Getting a VAT registration number

By registering, you’ll get a VAT registration number – a crucial identifier to include as part of your paperwork, invoices and so on.

By completing this registration, you’ll almost be acting like a larger company, as they’re usually the businesses that register first. This is good for credibility and, indeed, for dealing with other organisations that may value the ability to raise a valid VAT invoice.


Reclaim VAT

You can reclaim VAT from goods you’ve held for four years and services rendered within six months. So long as you’ve been a business throughout those periods and kept receipts, you can reclaim tax.

Once registered, there are other VAT refunds available on some goods and services. These must be balanced with what your business charges and receives in VAT sales to your customers.

If you’re buying standard or reduced-rate products but selling zero-rated, you’re likely in for a refund from HMRC.

Zero-rated products include:

  • new build housing
  • utilities
  • children’s clothes
  • books
  • some types of food.

There are other areas, some might be specific to your sector, so it’s worth finding out.


Avoid costs

If you sell directly to consumers – those who aren’t VAT registered – you’ll need to register early to avoid extra costs.

These consumers won’t be able to reclaim VAT, so by registering early you’ll build the cost of VAT in from the start, and therefore avoid having to raise your prices/absorb extra costs should you go over the threshold.


What VAT scheme should I use?

There are three main VAT schemes:


The Flat Rate Scheme 

This is for businesses with a turnover below £150,000. As part of this scheme, you pay a percentage of your turnover to HMRC, with set rates for each industry, but you can’t claim back VAT you incur on purchases.


Cash Accounting Scheme: 

Normally for small businesses (to be eligible, you need a turnover below £1.35 million), you only need to pay HMRC the VAT income you received during the quarter. However, this means you can’t claim VAT for any invoices that haven’t been paid.


Annual Accounting Scheme: 

You can make advance payments towards your bill throughout the year instead of making quarterly returns. Then you file one VAT return and pay the balance – or claim a refund for overpayments. Again, you are only eligible if you have a turnover below £1.35 million.

So should you be registered for VAT?

It depends on your business. But if you’re selling a lot of goods, you’ll likely be affected by VAT. So it can make sense to register.

We’re experts – we can help you with your business obligations, and make sure you’re in the best position to provide a great product to your clients.

‘Should I be registered for VAT?’ Get in touch with us today, and we’ll look at your business together.

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