How to register for VAT
How to register for VAT
Value added tax (VAT), is the tax that is required to be paid by consumers on goods and services received. VAT registered businesses are responsible for collecting the VAT and then passing these tax payments onto HMRC. The amount of VAT charged is calculated based on the value of the goods or services and dependent on what VAT rate the goods or services fall into. More information on the different VAT rates and how VAT is calculated can be found in a separate article on “How does VAT work?”
When do you have to register for VAT?
You must legally register for VAT if you are trading, either as a sole trader or a limited company, and your VAT taxable turnover reaches £85,000 or more per year. Your VAT taxable turnover is the total amount of everything you have sold, or services provided, which are not exempt from VAT. It is important to be aware that your turnover period for VAT registration is calculated as a continually rolling 12-month period. It also means that you must be VAT registered at the time you reach the threshold, not register only when you exceed it. It is therefore strongly advised that you register for VAT where you are likely to go over the threshold within the next 30 days.
When do you not have to register for VAT?
There are two instances where you may not have to register for VAT even when you have gone over the VAT threshold:
- You qualify for VAT exemption
- There is an exception to your VAT taxable turnover
Businesses that are VAT exempt are unable to register for VAT, even in cases where you may wish to do so. This is usually due to the fact that your business does not trade in any VATable goods or services. However, regardless of being VAT exempt, you must still pay VAT on any goods or services you receive from other providers where they are VAT registered. Furthermore, you will be unable to claim back the VAT payments.
If your businesses trades in VATable and non-VATable goods or services, then you may be partially exempt. This means that you will need to register for VAT (if you are at the VAT threshold), file VAT returns, are able to claim back VAT payments to businesses you have paid VAT to and must keep accurate records of both your exempt and non-exempt VAT purchases and sales.
Where you believe your business will only temporarily go over the VAT threshold as a one-off instance, you are able to and apply for an exception to being VAT registered. You must provide evidence as to why you believe your turnover is only temporarily over the VAT threshold, as well as provide reassurance that your turnover is not due to exceed £83,000 (the VAT deregistration threshold) over the next 12 months.
Can you register for VAT early?
Many businesses will choose to register for VAT early, despite not reaching the VAT threshold. There are many advantages that come with doing this:
- Give the impression to customers that your business is achieving more than it currently is. Most people will assume you are VAT registered because your turnover is at the VAT threshold. This can provide positive confirmation that your business is doing well or is viable, thereby instilling more trust for them to use you.
- Improve chances of working with large businesses. Some more established businesses will only work with other VAT registered businesses as this means they will be able to reclaim on VAT payments. If most of your customers or clients are bigger organisations, then it’s well worth considering levelling the playing field.
- Potentially ease any cashflow issues by being able to regularly reclaim VAT payments made. Where you pay more VAT for goods or services that you use than you charge for your own, you may find that HMRC will owe you a refund for VAT payments. For many this is one of the biggest advantages to voluntarily registering for VAT.
- Pre-empt and avoid late registration penalties. By voluntarily registering for VAT early, it means you can avoid any accidental late registration fines when the time comes that you do reach the VAT threshold.
However, drawbacks should also be considered before voluntarily registering for VAT:
- If your customers or clients are other small non-VAT registered businesses or individuals, they may perceive your prices to be more expensive than your competitors who are non-VAT registered.
- When you are VAT registered, you need to bear in mind the additional accounting and administrative responsibilities you will have, including filing regular VAT returns and making VAT payments to deadline. If you are not comfortable with doing this yourself, you may need help from chartered accountants so there will be costs to think about.
How to register for VAT online
The easiest way to register your business for VAT is online using the HMRC website. You will need a Government Gateway ID and password to log in. If this is your first time using an HMRC service, you can easily set this up by creating a new Government Gateway ID and password:
- Go to the register for HMRC taxes page on the HMRC website, select the appropriate option then click the next button to go through the pages.
- On the final page, you will need to select ‘create an account for me’.
- You will then need to enter your details to create your government gateway ID.
If you have a Government Gateway ID already, or once you have set one up, you will need to:
- Go to the register for HMRC taxes page, select the appropriate option then click the next button to go through the pages.
- On the final page, select ‘I have an account – login’
- On the sign-in page, enter your Government Gateway details.
- Once you have logged in you will need to scroll down to the ‘Get another tax, duty or scheme’ section of the page and click the button underneath this.
- Select VAT and follow the final steps to complete your VAT registration application.
To register for VAT, you will need to make sure you provide your business contact details, bank account details, Unique Tax Reference number, details of your annual turnover and the nature of your business.
Once you have registered for VAT online the system will create a VAT online account for you. This is where your VAT certificate will be sent and it can take up to 30 days for you to receive your VAT certificate. The VAT certificate confirms your VAT number and will also tell you when you will need to submit your first VAT return and payment.
What to do if you cannot register for VAT online
When you are unable to complete your VAT registration online you must register by post using the VAT1 form. You will not be able to register online and must register by post if you’re:
- applying for the Agricultural Flat Rate Scheme
- an EU business distance selling into Northern Ireland
- registering a group of companies with separate VAT numbers
- importing goods worth more than £85,000 into Northern Ireland from an EU country
- disposing of assets and you have claimed Directive refunds on them
All businesses registering by post must complete VAT 1 print and post form and post to HMRC. HMRC have created a notes to help document to help you complete your VAT registration. As well as the VAT1 form you will need to complete an additional document dependant on your business activity.
For some business activities, you will be required to complete an additional form and post it with the VAT1 form. If you’re:
- joining the Agricultural Flat Rate Scheme, also complete form VAT98
- registering a group of companies with separate VAT numbers, also complete forms VAT50 and VAT 51
- an EU business distance selling into Northern Ireland, also complete form VAT1A
- importing goods worth more than £85,000 into Northern Ireland from an EU country, also complete form VAT1B
- disposing of assets and you have claimed Directive refunds on them, also complete form VAT1C
Print and post applications can take up to 30 days. You might also be asked for more information, which will be asked for whilst your application is being processed however this can cause some delays.
What is the deadline for registering for VAT?
The deadline for registering for VAT is by the end of any month, where your total VAT taxable turnover for the last 12 months was over £85,000. You have to register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold.
For example: Between 10 July 2019 and 9 July 2020 your VAT taxable turnover was £100,000. That’s the first time it has gone over the VAT threshold. You must register by 30 August 2020. Your effective date of registration is 1 September 2020.
What happens if you’re late registering for VAT?
Failing to register for VAT online or by using a VAT1 form when your turnover grows beyond £85,000 could result in a hefty fine from HMRC. The amount of the fine is calculated based on the amount of VAT owed from the date when you should have been registered by and how late you were to register (or how long it took HMRC to find out that you were required to be registered):
- If you are not more than 9 months late, the penalty will be 5% of the VAT owed
- If you are more than 9 months late, but no more than 18 months late, the penalty will be 10% of the VAT owed
- If you are more than 18 months late, the penalty will be 15% of the VAT owed
It is important to note that you will still have to repay all the VAT that was due to be paid from the date you were meant to be registered. The penalty is on top of the VAT due, even where you may not have been charging your customers VAT. In addition to the late registration penalty, you could also be charged with failure to notify penalty.
Once you have registered for VAT, you will need to regularly complete VAT returns. If you need help selecting the most suitable VAT scheme for your business as well as completing your VAT returns, please get in touch through the contact form below to discuss your needs and book a Introductory call.
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