VAT can loom in the distance for many start-up businesses. Registering for VAT is a task for when your business’ revenue increases. I mean, there are worse problems than making more money…but it’s a very good idea to know how the following work:
1) When you have to register: What are the rules?
2) VAT Returns: How do they work?
3) Registering for VAT early: What are the pro’s & con’s?
What is VAT?
VAT is sales tax which is added on top of the sales of some goods and services. This needs to be reported and paid over to HMRC via the submission of a VAT return.
Once you are a VAT registered business, you can then also reclaim VAT on any purchases that you have made.
20% is the standard rate of VAT, though some goods and services have a reduced rate or a zero rate of VAT.
How does the VAT return work?
In most cases, a business will file a VAT return on a quarterly basis.
The VAT return is a summary of 2 things:
The VAT on sales for that quarter – which you owe to HMRC
The VAT on purchases for that quarter – which HMRC owe you
Your VAT return will show a net figure and this could be an amount you owe or an amount you will be due to receive. This depends on whether your sales or your purchases are higher for that quarter.
You have 1 month and 7 days after the end of the VAT quarter to file your return. You must pay any VAT you owe within this time.
Submitting your return:
HMRC’s is moving everyone across to submit taxes digitally. This is called MTD (Making Tax Digital).
At London Accountants, we are partnered with Xero – this makes filing VAT so easy. Drop us an email or give us a call if you have any questions about this.
Do I need to keep invoices?
Basically…YES. You must always keep invoices.
You should have a VAT invoice to support the VAT paid across on any income. You need invoices to support any VAT you are reclaiming on purchases.
We use Dext which connects to Xero, and it’s a really easy way to bring your invoices & receipts into Xero so everything is in one place. Nice.
When do you need to register for VAT?
You need to register when you cross the ‘VAT threshold’. This is when you have VAT taxable turnover of above £85,000 in the last 12 months, or you expect your VAT taxable turnover to go over £85,000 in the next 30 days.
‘Voluntary Registration’ is where you choose to register earlier. To work out whether this is a good idea, you need to look at your customer and cost profiles. Contact us if you need some help and advice with any of the above – we are here to help!
If you are looking for Fulham accountants or a tax advisor in London, get in touch!
e: firstname.lastname@example.org t: 0203 137 9791
The Team at London Accountants