Everything you should know about VAT for your small business

Are you a small business wondering whether you should be registering for VAT?

It is a legal obligation to register for VAT if your turnover is above £85,000. Registering for VAT lets you reclaim VAT on your purchases. If you pay more VAT than you collect from customers, reclaiming VAT makes up the difference.

Registering for VAT also means you are ready for growth!

However, there are always negatives, as with everything…

VAT registration means more paperwork, and sometimes you’ll pay more to HMRC (if you collect more VAT from customers than you pay out). We can help you out with the specifics!

How can I register?

Most businesses can register online – including partnerships and a group of companies registering under one VAT number.

By doing this you’ll register for VAT and create a VAT online account (sometimes known as a ‘Government Gateway account’). You need this to submit your VAT Returns to HM Revenue and Customs (HMRC).

You will need to register if…

If you exceeded the threshold in the last 12 months. 

You must register if, by the end of any month, 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.

If you’re going to exceed the threshold in the next 30 days

You must register if you realise that your annual total VAT taxable turnover is going to go over the £85,000 threshold in the next 30 days.

You have to register by the end of that 30-day period. Your effective date of registration is the date you realised, not the date your turnover went over the threshold.

This is how you can work out your taxable turnover…

Total value of everything you sell, that is not exempt – like lottery sales, postage stamps etc.

Here’s what you will need when you register

• VAT number
• First VAT return (and payment) details

• Effective date of VAT registration

Making tax digital

If you’re registered for VAT with a turnover of more than £85,000, you fall within the Making Tax Digital for VAT new reporting regime, which came into effect on 1 April 2019. Under the new rules, you must file your VAT returns via a new HMRC digital gateway. You need not provide any additional information. You must keep digital records, although this doesn’t mean having to buy expensive software. You can record things into a spreadsheet and send it to HMRC via bridging software

What is a VAT certificate?

A VAT certificate in the UK is a document that HMRC will send you to prove that your business is registered for VAT. 

It shows your:

• VAT number
• The date you need to submit your first VAT return and pay your bill
• ‘Effective date of registration’.