A Small Business Owner’s Guide to the Basics of VAT

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Should A Business be Charging VAT?

Business owners often enquire whether they should or shouldn’t add VAT to the prices of their products. Without much consideration, many assume that if they pay VAT to their suppliers, they should also be charging VAT on what they sell. Doing so without being VAT registered is treated as VAT fraud and can get the company into a lot of trouble.

What is VAT Fraud?

VAT fraud is a type of tax evasion. It happens when a business doesn’t charge VAT when they should, or charges VAT but doesn’t pay it to the HMRC.

What is VAT and When Should A Business Register?

VAT is a value-added tax, referred to in some countries as a goods and services tax. VAT registration is necessary once their turnover reaches a specific limit within any 12 months. It’s important to note that this is a rolling 12 months, meaning that each month includes the previous 11 months—thus, rolling! The threshold, also termed the “VAT threshold,” presently stands at £85,000 in the UK. However, voluntary registration is possible even if turnover falls below the statutory registration threshold, should they wish to recover VAT they might have paid out.

Delay should be avoided if registration is required, as penalties and interest charges may apply. Lateness could also lead to having to account for and pay the VAT due from the time registration should have taken place. If voluntary backdating of registration is chosen, a deadline must be observed. Regrettably, if it’s too late, recovering outstanding VAT from customers may not be feasible. In such a situation, please reach out to us for assistance. The longer this process is postponed, the greater the penalties will become.

What are the Benefits of Being VAT Registered?

VAT registration can bolster the cash flow of a business and be beneficial if:

  • the nature of trade entails costs or purchases inclusive of VAT; 
  • a majority of customers possess VAT registration and can reclaim the VAT added to their sales; 
  • supplies are predominantly zero-rated for VAT purposes. However, it’s vital to comprehend that the VAT does not belong to the business—it’s the Revenue’s!

What follows after Registration for VAT?

VAT registration obligates a business to complete a VAT return form every quarter, demonstrating to HMRC the amount of VAT they are liable to pay. The VAT return amount corresponds to the reclaimable VAT on business purchases.

In certain situations, the level of a VAT payment can be limited. Feel free to enquire about this.

If assistance is required, our professionals can efficiently complete the VAT registration or return forms, providing an affordable service tailored to accounting needs. Get in touch with us for a free consultation by calling 01432 278179.

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