Make sure you monitor your turnover
Unless your supplies are exempt, you are required to register for VAT if your taxable supplies exceed £85,000 (2018/19) in any previous 12 month rolling period, and also if your taxable supplies are expected to exceed £85,000 in the next 30 days alone. We can provide VAT advice and reporting services to help your business fulfil its obligations.
Even if your turnover is lower than the registration threshold, voluntary registration for VAT may be advantageous if you make mostly zero rated supplies or you supply mainly to businesses who are VAT registered. This is because you will be able to recover VAT you have suffered on your purchases and expenses without any detrimental effect on the competitiveness of you business. We can help you decide whether this could be beneficial for your business.
If you decide to or are required to register for VAT, you can reclaim any VAT suffered on purchases of goods within the previous four years (if still held within the business) and services received within the previous six months prior to your registration date.
Once you are registered for VAT, you will need to submit VAT returns, either monthly, quarterly or annually and pay any balance of VAT charged on your goods or services to HMRC.
There are various VAT schemes available depending on your business and your circumstances. We can talk you through the pros and cons of each type of scheme and help you decide which options would be most beneficial to your business.
Cash accounting scheme
Usually VAT is payable when an invoice is issued and it is the date on the invoice (the tax point) that determines when VAT must be paid to HMRC. Under the cash accounting scheme, you account for VAT on the basis of the date you receive and make payments, instead of the date that appears as the tax point on the invoice.
The benefit of this scheme is that you don't need to pay VAT over to HMRC until your customers have actually paid you, but the downside is that you can't recover VAT on your purchases and expenses until you have actually paid for them. Cash accounting can be beneficial if your customers are slow to pay or you get many bad debts. However, the scheme may not be appropriate if you regularly reclaim more VAT than you pay, or if you buy a lot of goods and services on credit.
Annual accounting scheme
With this scheme, you pay VAT in instalments throughout the year based on the VAT you paid in the previous year. If you have been trading for less than a year, the instalments are based on an estimate of your VAT liability. You then only need to complete one VAT return at the end of the year and there may be a balancing payment or refund due.
Annual accounting can ease the burden of VAT reporting, but it will not be suitable if your business regularly reclaims VAT as you would only get one repayment at the end of the year.
Flat rate scheme
If your VAT taxable turnover is less than £150,000, you may be eligible to join this scheme. Using the flat rate scheme you do not have to calculate the VAT on each and every transaction. Instead, you simply pay a flat rate percentage of your turnover as VAT. However, you are not able to recover VAT on any of your purchases and expenses.
The percentage that you pay on your sales is less than the standard VAT rate because it takes into account the fact that you are not reclaiming VAT on your purchases. There are a range of flat rate percentages and the one you use depends on your trade sector. If you are newly VAT registered you can also reduce your flat rate by 1 per cent until the day before the first anniversary of your VAT registration.
However, new rules from April 2017 have reduced the benefit of using the flat rate scheme if you don't spend more than 2% of your turnover on relevant goods. If you are a service style business who doesn't spend money on goods, then you might find that the flat rate scheme is no longer suitable. We can help you decide whether or not this scheme might be appropriate to your circumstances.
Further guidance about VAT and how to register can be found on the HMRC website:
This information is not meant as a substitute for professional advice and by no means covers every scenario. Almost every rule described here will be subject to many exceptions and caveats. Tax legislation is extremely complex and can be difficult to understand. You should discuss your circumstances with a qualified professional before acting on any information contained within this website. Tax legislation is constantly changing and the information contained within this website is written from our current understanding and interpretation of the tax system as of 6 April 2018.
Links to external sites - Brown Royd cannot be held responsible for the content of external sites.