In the first in a short series of Value Added Tax bulletins for small businesses, Les Howard looks at what VAT is, and when you must register your business.
If you are in business it is certain that VAT will affect you in some way. Whether you supply goods or services, VAT will probably be charged on what you sell.
VAT was introduced on 1 April 1973. The then Chancellor of the Exchequer announced VAT to be a ‘simple tax.’
Over 40 years later, VAT is anything but simple. Published legislation, case law, and official guidance runs to many thousands of pages.
This short series of articles provides some basic practical guidance about VAT.
The first question is whether you should or, indeed, can register for VAT. Current legislation requires that a person (e.g: sole trader, partnership, limited company, etc.) register for VAT if his ‘taxable turnover’ exceeds £83,000 in a 12 month period (2016/17 tax year).
What this means is:
If your business makes only VAT exempt supplies, you cannot register for VAT. This includes activities in the finance, insurance, health, and education sectors. If you are not sure whether this applies to you, find out. Keep a written note of whether your supplies are taxable or exempt.
If your business makes taxable supplies over £83,000, you must register for VAT. There are time limits for doing this; and penalties for failing to register within those time limits.
If your business makes taxable supplies below £83,000, then the rule-of-thumb is this:
- If you are mainly B2B (Business-to-Business) then do register, as this will allow you to reclaim VAT paid out
- If you are mainly B2C (Business-to-Consumer) , then don’t register for VAT, as it will increase your prices.
The registration process is all online nowadays. The HMRC website is not the easiest to operate, mainly because there are so many permutations to be addressed.
HMRC have their National Advice Service (0845 010 9000) which will give information. Do note that the NAS does not provide advice (in spite of its name), but only information.
A good starting point is;
Do appoint an Accountant and/or bookkeeper as early as you can to help deal with your VAT Registration, as well as other matters. If your affairs are complex you may also need to speak to a VAT Consultant.
The second part of ByteStart’s VatChat series looks at how you pay and reclaim VAT.
More help on ByteStart
For more information and help on dealing with VAT read ByteStart’s other guides;
- ByteStart’s guide to Value Added Tax (VAT) for start-ups and small businesses
- VAT registration – when should you register for VAT?
- Flat Rate VAT Scheme – an overview for small businesses
- What is the VAT cash accounting scheme?
For tips on accounting and tax try;
- How to choose the best online accounting software for your business
- 10 ways a small business owner can pay less tax
- Corporation Tax – How to reduce your bill
- Book-keeping basics every new business owner must know
- Using Research and Development tax relief to reduce your corporation tax bill
- How setting up a salary sacrifice scheme can reward staff and cut your tax bill
ByteStart also brings you help and tips on all aspects of starting and running a small business. Check out some of our most popular guides;
- 5 things you must do when you go self employed
- 10 advantages running your business as a limited company has over being a sole trader
- How peer-to-peer lending offers start-ups and small businesses a new funding option
- Making your small business a BIG hit online – A Digital marketing guide for small business owners
- 10 Do’s and Don’ts of writing a business plan
- What insurance policies are your business legally required to take out?