Knowing whether you should register your company for VAT can be confusing. Some companies are legally required to register, but others are not, adding to the confusion. But fear not, for Your Company Formations is here to unravel the VAT question and ensure you are up to date with your knowledge.

First and foremost, let's address the question about who needs to register for VAT. The answer can be complicated, as it hinges on your business's annual taxable turnover. VAT registration becomes mandatory if your turnover exceeds the current threshold of £85,000. Failure to comply can result in hefty fines, so staying on top of the regulations is essential.

On the other hand, businesses that solely deal in VAT-exempt goods and services are exempt from VAT registration. VAT registration becomes optional for budding entrepreneurs growing their businesses with a taxable turnover below £85,000. While not mandatory, registering can offer certain benefits, such as reclaiming VAT on business purchases.

So, how do you determine whether VAT registration is right for your business? Are there benefits to voluntary registration? Our team at Your Company Formations is here to guide you through the process.

Benefits of registering for VAT

For most business owners making wise investments and watching their company flourish, VAT can feel like a hidden cost, a stealthy tax that quietly diminishes their profits. However, once registered, you can reclaim VAT on your business expenses. It is like a cashback scheme, where you get reimbursed for the VAT you have paid on eligible purchases.

Here's how it works: when you make a purchase, you will still pay the VAT-inclusive price. But when you file your VAT return with HMRC , you can claim that VAT back, essentially offsetting the amount you have paid.

It is like a game of VAT give-and-take. You give HMRC VAT when you make sales, and they give you VAT back when you claim it on your expenses. It is a delicate balance, but with some planning, you can tip the scales in your favour.

What do I need to register for VAT?

Firstly, to register for VAT, ensure you have your National Insurance (NI) number or Unique Taxpayer Reference (UTR) ready. These are your unique identifiers in the world of taxes.

Gather the details of any other businesses you have owned within the past two years. This includes ventures that have since been sold or closed. HMRC likes to track your entrepreneurial journey, so be prepared to provide a comprehensive history.

You will need your business bank account details. These will be the channels through which VAT payments and, if applicable, reclaims will flow. Make sure your bank account information is accurate and up-to-date.

If you purchased the business you are registering for VAT, you must supply records of the sale. This documentation proves ownership and ensures a smooth transition into VAT compliance.

Accuracy and completeness are key, so double-check your information before submitting your application. And if the intricacies of VAT registration leave you feeling overwhelmed, feel free to use our VAT registration services from Your Company Formations. We will ensure a seamless registration process and a solid foundation for VAT compliance.

How to register for VAT

For a quick and convenient VAT registration, go to the HMRC website to register online. Or, if you are a fan of more traditional paper methods, download the VAT registration form from the gov.uk page, fill it in with your details, and post it off to HMRC.

VAT registration can be a complex process that leaves you overwhelmed. By using our VAT registration services, your application will be handled smoothly and efficiently. We will complete the VAT01 form for you, submit it to the correct HMRC department, and assist you in joining a specialist scheme if applicable

You will receive your VAT number or acknowledgement of your specialist scheme membership directly from HMRC, typically within ten working days.

Choosing a VAT accounting scheme

For most businesses, standard VAT accounting is the go-to method. It's a straightforward approach that involves meticulously tracking the VAT collected on each sale and the VAT paid on each purchase. This information is then compiled into a quarterly VAT return submitted to HMRC.

Annual VAT Accounting: A Simplified Approach

For some businesses, annual VAT accounting offers a streamlined alternative. Instead of quarterly returns, businesses file a single annual VAT return. However, quarterly payments are still required based on estimates or the previous year's return.

Flat-Rate Scheme: A Percentage-Based Solution

For certain smaller businesses, the flat-rate scheme provides a simplified approach to VAT accounting. Instead of tracking individual transactions, businesses pay a fixed percentage of their turnover as VAT. An accountant or bookkeeper can help determine if this scheme suits your business needs.

Cash Accounting Scheme

Under the cash accounting scheme, VAT is collected or paid when money changes hands rather than when invoices are issued. This differs from the other schemes, where VAT is collected or paid upon invoice issuance.

Choosing the Right Scheme

Selecting the most suitable VAT accounting scheme requires careful consideration of your business's unique circumstances. Collaborating with an accountant or bookkeeper to assess your specific needs and make an informed decision is advisable.

Remember, VAT accounting doesn't have to be a daunting task. With the proper guidance and understanding, you can navigate this aspect of your business operations confidently and efficiently.

What do I do once I have registered for VAT?

Once you have successfully registered, your journey doesn't end there. Here's a quick checklist to ensure you are all set for the post-registration phase:

1. VATify Your Prices: Remember those prices you so carefully calculated before? Now is the time to add VAT to them. This may seem like a minor adjustment, but it's crucial to ensure you collect VAT correctly from your customers.
2. VAT Invoices: With VAT registration comes the responsibility of issuing VAT invoices to your customers. These invoices are official receipts, providing detailed information about the transaction, including the VAT amount.
3. VAT Returns: You must file a VAT return with HMRC every quarter. This document summarises your VAT transactions for the period, detailing the VAT collected from sales and the VAT paid on purchases.
4. Digital VAT Records: In the digital age, HMRC prefers that you maintain your VAT records electronically. This ensures easy accessibility, organisation, and compliance with record-keeping requirements.
5. A Dedicated VAT Account: Creating a separate VAT account is a wise financial decision. This dedicated account will help you track your VAT transactions, ensuring you have clear visibility of your VAT position and can make timely payments to HMRC.

Why do I need to keep digital records?

Making Tax Digital (MTD) has emerged as the new standard for tax record-keeping. As a VAT-registered business, you are already familiar with maintaining accurate and up-to-date records. But with MTD, you will take your record-keeping to the next level, embracing the power of digital technology to streamline your processes and ensure compliance.

Digital records now play a pivotal role in MTD compliance. These records provide transparency, accessibility, and organisation, making managing your finances and meeting HMRC requirements easier.

HMRC has outlined specific guidelines for the digital records that MTD-registered businesses must maintain. These include:

• Sales and Purchase Records: Capture every transaction, from sales receipts to purchase invoices, in digital form.
• VAT Account: Maintain a comprehensive digital VAT account summarising your VAT transactions.
• VAT Invoices: Issue accurate and compliant VAT invoices electronically.

Record-Keeping Requirements

The fundamental principles remain the same whether you are keeping records digitally or physically. Your records must be:

• Accurate: Reflect the true nature of your transactions without any discrepancies or errors.
• Complete: Include all relevant information, including dates, amounts, and transaction details.
• Readable: Easily accessible and understandable, whether in digital or physical form.

Preserving Your Records: A Six-Year Commitment

As a VAT-registered business, you must retain your records for at least six years. This period extends to ten years if you have utilised the VAT Mini One-Stop Shop (VAT MOSS) service.

Non-Compliance: Potential Penalties and Inspections

Compliance with MTD is not just a matter of good practice; it's a legal requirement. Failure to adhere to MTD regulations can result in penalties and inspections from HMRC.

Who do we help with our VAT registration services?

We help a wide variety of businesses successfully obtain their VAT number. Our team of experts has extensive experience working with businesses of all sizes and industries, including:

• New businesses: If you're starting, we can help you register for VAT so that you're compliant from the very beginning.
• Online businesses: If you sell goods or services online, you may need to register for VAT, regardless of your turnover. We can help determine if you need to register and guide you through the process.
• Small businesses: We have a particular focus on helping small businesses get the most out of their VAT registration. We can help you understand your VAT obligations and ensure you claim all the credits you're entitled to.
• Sole traders: If you're a sole trader, you may need to register for VAT if your turnover exceeds a certain threshold. We can help you understand the rules and guide you through registration.
• Sole traders with two businesses: If you're a sole trader with two businesses, you may need to register each business for VAT separately. We can help you understand the rules and make sure you're compliant.

Conclusion

VAT registration may seem like a complex process, but it can be smooth and manageable with the proper guidance and understanding. By streamlining your record-keeping and working closely with your accountant, you will ensure you maximise your VAT reclaims and adhere to all regulations.

Remember, VAT is not a burden but a tool for financial optimisation. Utilise it cleverly, and watch your business flourish.

Recommended further reading:

Should I expand my business or remain a solo entrepreneur? Please read our guide, 7 Advantages of Being a Sole Trader , to help weigh up your options.

Are you seeking financing for your company? Our post, How to Check Your Company Credit Score in the UK and Make Sure it’s Optimal , will be a helpful read.