If you’re a business owner, then registering for VAT may be something you’ve considered. For some businesses, it is required to register for VAT and for others, they have the choice to register or not. In the UK, 2.7 million private sector businesses are registered for VAT.
But what even is VAT? What businesses are required to follow the official government guidelines? What are the pros and cons of being registered? How do you register for it? In this article, we’ll answer those questions and more, helping to get your business started. So, let’s begin.
What Is VAT?
VAT stands for Value Added Tax. This is a tax you pay when you buy goods or services. In the UK, the standard rate is 20%. When you purchase something in a shop, any VAT will have already been added. Only companies that are VAT registered can charge VAT on taxable supplies.
What Are VAT Rates In The UK?
On the 4th January 2011, the standard rate of VAT increased from 17.5% to 20%.
We can see the figures in the table below. Some things are exempt from VAT. They include property and financial transactions as well as postage stamps.
| Rate | % of VAT | What the rate applies to |
| Standard rate | 20% | Most goods and services |
| Reduced rate | 5% | Some goods and services, such as home energy and children’s car seats |
| Zero rate | 0% | Zero-rated goods and services such as children’s clothes and most food |
Does My Business Need To Register For VAT?
For businesses that have a turnover of more than £85,000, then by UK law, you are required to register for VAT. However, if your turnover is under this figure, then you can voluntarily register.
| Businesses that are required to register for VAT | Those with an annual taxable turnover of more than £85,000. |
| Businesses that can choose to register for VAT | Those with an annual taxable turnover of less than £85,000. |
| Businesses that cannot register for VAT | Those that sell only VAT-exempt goods and services. |
How Do I Register For VAT?
The easiest way to register your business is online with HMRC. Here, you can create an online account where you will submit your VAT return to HMRC. However, those that aren’t able to do it online may need to register by post.
To register by post, you will use the VAT1 form. Simply print out and complete the form, as well as any additional forms that are needed and then send them to HMRC. By post, applications take around 30 days to process. Some of the reasons additional forms may be required include:
- Businesses applying for a registration exemption.
- Businesses joining the Agricultural Flat Rate Scheme
- Businesses using separate VAT numbers to register different parts of the business.
What Do I Need When Registering For VAT?
To register for VAT, you’ll need the following:
- A National Insurance (NI) number or your tax identifier
- Your business bank account details
- Any details of other businesses that you have owned within the past two years
- For those that have bought the business, records of the sale will be needed.
What Is The VAT Threshold?
Below is a table highlighting the VAT threshold in the UK.
| Circumstance | Threshold |
| VAT registration for UK-established businesses | More than £85,000 |
| VAT registration for non-UK-established businesses | £0 |
| Registration for distance selling** into Northern Ireland | More than £70,000 |
| Registration for bringing goods into Northern Ireland from the EU | More than £85,000 |
| Deregistration threshold | Less than £83,000 |
Will I Receive A VAT Registration Certificate?
Once you have registered for VAT, within 30 working days your receive a VAT registration certificate should be delivered. You can also check your online account as one should also be sent there.
How Do I Get A VAT Number?
You can find your VAT number on your VAT registration certificate. This number must go on any invoices you send out. To find another business’s VAT number, check the invoices that you have been sent.
If there is no number on the invoice, then it will be invalid. This means you cannot reclaim VAT and you must contact the business immediately. Also, you can call HMRC’s VAT helpline on 0300 200 3700 to check a VAT number is valid.
How Do I Choose A VAT Accounting Scheme?
When you are registering for VAT, you’ll be asked which accounting scheme you want to use. This is the method HMRC uses to calculate whether you are due a refund or owe VAT.
| Standard VAT accounting | VAT paid and collected on each sale and purchase is recorded, then you submit a VAT return to HMRC every quarter. |
| Flat-rate scheme | Some small businesses can simply pay a percentage of their turnover as VAT. |
| Annual VAT accounting | Still paid quarterly, however, VAT returns are submitted once a year. Quarterly payments are an estimate or based on your last returns. |
What Happens If I Don’t Register For VAT?
If you are required to register for VAT with HMRC and fail to do so, you could face penalties. The severity of the penalty will depend on numerous factors, such as how late the payment is and how much is owed.
On top of the penalty will be the VAT that you still owe from the date. As well as late registration penalties, there may also be extra fines such as failure to notify penalty. In some cases, a civil evasion penalty may be given.
What Are The Benefits And Disadvantages Of Registering For VAT?
Depending on your business, registering for VAT can have pros and cons. There are plenty of business owners that don’t understand there is value in registering. However, it does not come without its pitfalls too. Let’s take a look.
Advantages
| Creates a good first impression | Being VAT registered gives the impression your company is professional and trustworthy, making your brand look more legitimate. This may help business. |
| Increased cash flow | As you will be charging more for goods and services due to the VAT, businesses tend to see an increased cash flow, having a positive impact on investors. |
| Others will want to work with you | Many companies want to only work with VAT registered companies. From suppliers to lenders to buyers, people will want to work with you, creating more opportunities and opening up new business connections. |
| Reclaiming VAT | For VAT registered companies, for all goods and services that your business buys you can reclaim VAT. There is an input tax (tax you pay on goods and services) and output tax (tax is the VAT you charge). When inputs are higher than outputs, they can be claimed back. When investing in expensive equipment, being VAT registered can be extremely beneficial. |
Disadvantages
| Unanticipated costs | Some of the costs that come with being VAT registered may come as a surprise. The unforeseen costs such as possibly having to employ a VAT professional can be expensive. The process of registering can be difficult for those without any accounting experience. Also, you need to factor in penalties and fines for those who don’t submit VAT forms in the correct timeframe. |
| More admin work | After you’ve registered, you’ll begin to see how much workload is involved. With record-keeping and administration work having to be precise, you’ll need to keep meticulous VAT records to ensure your forms are submitted without mistakes, as well as on time to avoid penalties. |
| Increase prices on your goods and services | Once you have your certificate to state you are VAT registered, your business will be required to charge additional amounts to your goods and services due to VAT. This may impact your prices, causing them to potentially increase significantly. This may not matter as much to businesses that deal with other VAT registered clients, because they themselves can reclaim this VAT. However, this may impact members of the public which we talk about in the next point. |
| Customers may look for cheaper businesses | For companies that sell their goods and services to the public, then your customers cannot reclaim the VAT back. This means that your customers may look elsewhere for cheaper prices, ending up at your competition. This is because other businesses may not be VAT registered, so can offer lower prices. |
Can My Business Get A VAT Exception?
You can apply for a VAT exemption if you know you’ll temporarily breach the threshold. When applying, you will have to show evidence of why you think your VAT taxable turnover in the next 12 months won’t exceed the deregistration threshold of £83,000.
To apply, you can write a letter to HMRC at:
HM Revenue and Customs – VAT Registration Service,
Imperial House,
77 Victoria Street,
Grimsby,
DN31 1DB,
United Kingdom
If HMRC accepts your claim, you’ll be told in writing. However, if you are unsuccessful, you’ll be registered for VAT.
What Happens Once I’ve Registered For VAT?
Once you’re successfully VAT registered, you will need to do the following:
- Add VAT to your prices
- Issue VAT invoices to your customers
- File VAT returns
- Pay VAT due to HMRC
- Keep digital VAT records