Do you know if your trading income for the last twelve months and estimate for the next twelve months? If either of these are likely to be over £83,000 you will need to register for VAT, but you may wish to voluntarily register due to the type of business or for commercial reasons.
If all your customers are VAT registered businesses, registering for VAT will not increase the cost to them as they can reclaim any Vat you charge. However, if most of your work is for individuals it will make your quotes higher. This is something that should be carefully considered.
Registration can be carried out online through your HMRC login.
For ease of accounting it is ideal for your VAT quarter to coincide with your accounts year end, when registering for VAT you can choose your quarter end dates and this is worth bearing in mind.
Once registered for Vat you will receive a certificate around three weeks later which will give your date of registration, your VAT number and the dates for the VAT returns. You need to make a note of this especially as the first return can be anything from one month to five months depending on what HMRC decide.
Your VAT number must be shown on all invoices and credit notes issued to customers, this will enable them to reclaim any VAT paid where appropriate.
All receipts should be kept, and for VAT purposes these need to be kept for six years.
Accounting records, whether on excel or an accounting package will need to split the VAT so that you can calculate the VAT due at the end of a quarter. Accounting records need to be kept in a good status and be available for a VAT inspection.
If you buy or sell overseas, there are special requirements especially if trading within the EU. Trading with the EU can mean no VAT is paid on purchases and no VAT charged on sales as long as the EU company is registered for VAT and they have given you a copy of their VAT number. Depending on the size of imports/exports there are other forms that will need to be submitted, which we can discuss with you.
Once you are registered for VAT you have the choice of ways to account for VAT:
- Accruals basis – your VAT return accounts for VAT on all the sales invoices and claims VAT on all purchase invoices dated within the VAT period
- Cash accounting basis – your VAT return accounts for VAT on income received in respect of sales invoices and claims VAT on any purchases that were paid during the period. This is ideal where your customers are slow payers as you do not have to pay the VAT until you have received the payment. The turnover limit for cash accounting is £1.6m after which you need to revert to accruals basis.
- Flat rate schemes – flat rate schemes mean you pay a fixed rate of VAT, you keep the difference between what you charge your customers and what you pay to HMRC although the difference is liable to income or corporation tax. It is imperative that you choose the correct rate for your type of business as choosing the wrong rate can result in penalties and interest on the extra VAT. You can join a flat rate scheme if your turnover is £150,000 or less but must leave the scheme if your turnover exceeds £230,000.
For the first VAT return you can claim VAT on purchases up to four years prior to registration as long as the product/asset is still held at the date of registration. VAT on certain other expenses e.g. stationery, telephone, accountancy fees can be claimed for six months prior to registration.
If you are think you might need to register for VAT, wish to discuss the different VAT schemes or you are looking for an accounting package to assist with the preparation of VAT returns, please contact us and we will be happy to be of assistance.