Call:+44 203 002 0885 | WhatsApp 07432103651

If you have a business, there are several decisions to be made. For example, if you are setting up a new business or expanding, one of the decisions is whether to register for VAT. If your turnover has reached £85,000, the decision is out of your hands – you have reached the VAT threshold and must register. If your turnover is below the threshold, you can choose whether to register or not.

Generally, once you’ve registered for VAT, you must put the corresponding rate on your invoices and make quarterly VAT returns and HMRC payments. If you are not VAT registered, or your customer is not, VAT becomes complicated.

You’ll need to make a decision on how to deal with a customer who doesn’t have a VAT number if you provide discounts, refunds, or return policies for non-VAT registered customers in your terms and conditions. The prices at which the products are supplied for such customers should take into account any such discounts etc.

This article explains the different ways VAT can be charged and outlines what you need to do to become VAT registered. We also highlight the penalties HMRC might charge if you get the process wrong. Make sure to get professional advice if you are unsure how to handle VAT since some aspects can be complicated.

Why you should register for VAT?

VAT, or value-added tax, is a consumption tax imposed on goods and services at each stage of production. It’s often only applied to the value-added at every step. The advantage of being VAT registered is that it simplifies tax returns and reduces the administrative burden for small business owners.

You can reclaim any VAT that you are charged for around 15 EU countries around you. When this happens, your input tax will be more than the output tax. If your input tax is more than the output tax, you can collect the difference back from HMRC, saving you some money. It’s important to remember that the figure of £85,000 must represent taxable turnover – that is, for the supply of goods or services that are VAT-rated. Any goods or services, not VAT-rated must not be included in the figure.

How to register for VAT

Any firm in the UK that sells products or services to other EU nations must register for VAT. The first stage is to register with the HMRC as a company within 30 days of launching a business. If you’ve already registered as a Sole Trader, the next step is to register for VAT in the United Kingdom with HMRC. In most situations, if you already have a company and want to register for VAT, you can do so online (or by using paper form VAT1). You’ll need the following information before you can log on and start your registration:

  • Your Unique Tax Reference. This is a ten-digit number you’ll have been sent when registering to pay Corporation Tax.
  • Your business’ bank account details.
  • Your company number and registered address.
  • Details of any associated businesses from the past two years.

If necessary, you may also require information about any businesses that are being transferred or purchased.

You should receive a VAT registration certificate when you apply for VAT (VAT4). This will state:

  • your VAT registration number
  • the date you need to submit your first VAT Return and payment by
  • your ‘effective date of registration’

You will quote your VAT registration number on any receipt or invoice in which VAT is applied to goods and services.

Charging VAT

You’ll be provided with a unique VAT number when you register for VAT, and you’ll have to start issuing VAT invoices instead of routine invoices. VAT invoices should include information such as the tax rate(s) imposed and the total amount of tax payable, as well as your VAT number. When you purchase VAT-rated supplies from a VAT-registered business, you’ll get a VAT invoice containing the supplier’s VAT number and the amount of VAT included in the total invoice. You must pay the full amount due to the supplier.

To charge or reclaim VAT on whatever you buy or sell, you must first be registered for VAT. If you’re registered for VAT, your VAT number must appear on practically every invoice you send out. There are a few exceptions (for example, if you sell secondhand items on a discount programme or sell zero-rated products), but VAT-registered companies must always include their VAT numbers on their invoices as a general rule. Businesses who aren’t registered for VAT are unable to reclaim any of the VAT they pay.

If you are VAT registered, you can get a refund from HMRC for the VAT you paid. You obtain a refund by reporting this as input tax on your VAT return. Even if the items are VAT-rated, if you buy supplies from a non-registered company, you should not receive a VAT invoice, and you must not pay any VAT stated wrongly on the invoice. If you pay VAT in error, HMRC will levy you a penalty fee.

Surcharges and penalties levied by HMRC for VAT violations

HMRC has a range of penalties regarding registration and payments. You must be familiar with the critical registration dates in order to comply with their criteria. Your Effective Date of Registration (EDR) is determined by whether you applied to register before or after crossing the threshold. If you do not apply on time, you may face fines for late registration.

It’s risky to charge VAT if you’re not registered. It’s also unwise to ignore your VAT bills.

You are also responsible for sending your VAT return on time when registered for VAT. A default will occur when HMRC does not receive a return on all VAT payable by a certain deadline. In certain circumstances, such as the COVID-19 pandemic, HMRC may prolong this deadline, allowing entitled businesses to withhold VAT payments.

VAT is also penalised if it is charged too early. You can’t legally charge VAT to your consumers unless you’ve registered for VAT. The penalty for charging VAT on an invoice without being registered is up to 100% of the VAT on the invoice. There’s also a ten per cent penalty for charging VAT before the deadline. Even if you notify HMRC that you made a mistake, you will be subject to this penalty.

VAT Returns are normally completed online for every 3-month VAT period. These returns must be delivered to HMRC within 1 month and 7 days after the end of the VAT period. If it’s within your budget, it may be beneficial to appoint an accountant to prepare and submit VAT returns and handle VAT affairs on your behalf. This is a brief overview of the rules on VAT registration and administration.

Bloom Financials Can Help

When you aren’t registered, charging VAT would almost certainly result in further penalties and charges from HMRC. However, not charging VAT according to your VAT plan, or the VAT scheme you choose for your business is problematic. Understanding the VAT threshold and how to register will enable you in avoiding penalties and claim money back on purchases. Our team of experienced tax accountants would be happy to assist you if you require professional guidance on any aspect of VAT or confirmation that you are fully complying with HMRC’s VAT requirements.

Reach Us

Please let us know if you have any queries. Wish to leave a comment on Bloom Financials Private Limited, or want further information, don’t hesitate, go ahead.

We offer tailored solutions for your business, regardless of your requirements. Our friendly team is ready to help you, so please feel free to contact us.

Related Artical