Should you be registered for VAT?

When your businesses turnover reaches a certain level during a 12-month period it becomes a legal requirement to register for VAT.

Your VAT returns are generally done on a quarterly basis and you have to pay the output tax you have received less the input tax you have incurred. Output tax is the VAT you charge your customers on the goods and services you sell. Input tax is the VAT you pay to your suppliers on goods and services you buy.

If you are providing goods and services to customers where the majority are VAT registered, it may become advantageous to register voluntarily even if you are below the VAT registration threshold. Your customers will not mind because they will be able to reclaim the VAT you charge them and you will be able to reclaim any VAT you incur on your business expenditure.

However, if you are supplying goods and services to the domestic markets, it may be a better idea to stay unregistered for as long as possible as this will give you a pricing advantage over your competitors.

Top tip

It’s worth remembering that your business is acting as a tax collector for HMRC. The VAT you charge to your customers less the VAT you reclaim belongs to the government. Therefore, it is recommended that you have a separate bank account to hold your VAT money as to avoid the temptation to use it against your businesses’ working capital.

There are certain special VAT schemes available that may benefit your business and these include the cash accounting scheme, annual scheme and Flat Rate Scheme.

Please feel free to contact us with any VAT queries you have which may include VAT registration and submitting quarterly returns.

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This post was written by Daisy