VAT is one of the things all businesses need to be aware of. It’s important, for example, to understand what the VAT threshold is and when you need to register for VAT.
It’s also important to consider what benefits you might get from registering even if you are below the threshold.
Also you need to know who can not register for VAT.
What is VAT
Value Added Tax – the amount of tax added to the value of goods or services you buy. You can only charge VAT, if your business is registered for VAT. All VAT-registered businesses must charge VAT on the goods or services they provide in the UK.
Most goods and services are standard rate. The standard rate of VAT in the UK is 20%. You should charge this rate unless the goods or services are classed as reduced or zero-rated. Some items are ‘exempt’. You cannot charge VAT on exempt or ‘out of scope’ items.
Compulsory VAT registration
You must register your business for VAT with HMRC than turnover is more than £85,000. When you register, you’ll be sent a VAT registration certificate, confirming your ‘effective date of registration’, your VAT number and when to submit your first VAT Return.
Most VAT registered businesses that earn over £85,000 must also follow the rules for "Making Tax Digital for VAT".
You might also need to register in some other cases, depending on the kinds of goods or services you sell and where you sell them:
- If you’ll exceed the VAT threshold in the next 30-day period.
- If you exceeded the VAT threshold in the past 12 months.
- If you sell goods or services that are VAT exempt and are based in Northern Ireland.
- If you take over a VAT-registered business.
- if your businesses outside the UK.
There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK.
Other businesses can choose to register for VAT voluntarily.
Voluntaty VAT registration
You can register voluntarily, if your business turnover is below £85,000.
There are few reasons why you would voluntarily register:
1. Reclaim VAT
The main advantages is that you can reclaim VAT on most goods or services you buy for your business.
2. Service VAT-registered businesses
If the clients you service are mainly VAT-registered businesses then it’s worth becoming one too.
3. Access the flat rate VAT scheme
If your business has a low level of outgoings, you may stand to benefit financially from becoming VAT-registered, and in particular take advantage of the flat rate VAT scheme.
4. Increase credibility
You can earn credibility to customers. If you’re not registered for VAT, other companies will know that your turnover is below a certain level and they may choose to make assumptions about your business based on that.
5. Ready for growth
By registering for VAT, you’ll avoid having to watch out for the threshold and it sets the tone that your business is braced to expand.
When should I not register voluntarily?
Businesses that sell only VAT-exempt goods and services cannot register for VAT.
Some goods and services are outside the VAT tax system so you cannot charge or reclaim the VAT on them.
It’s not worth registering if you’re providing goods and services to customer who can’t reclaim the VAT. By charging VAT you needlessly increase your prices by 1.2 times.
More information about VAT, you can find on GOV.UK website.