02 September 2016

All businesses in the UK are required to register for VAT when their turnover reaches certain limits set by the government. For the tax year 2016/17 this threshold is set at £83,000.

The current rate of VAT charged on most services and goods is set at 20%, although certain supplies are “zero rated” or “exempt”.

In the case of “zero rated” supplies you don’t charge output VAT but you can reclaim your input VAT suffered on both services and goods received, however if the supply is “exempt” then you don’t charge or claim back any VAT.

‚ÄčIt may be advantageous to register for VAT if you sell mainly to VAT registered businesses even if you haven’t reached the VAT registration threshold.

To register for VAT you, or your accountant, would have to complete and sign a VAT 1 form and send to HMRC. The process usually takes between 6 – 8 weeks to complete, however you could speed up the process if you register online.

All businesses must register for VAT once they reach the threshold in a rolling 12 month period.

When you are registered for VAT you need to show your VAT registration number on all your invoices, you should always ask for a VAT invoice from your suppliers to claim back the VAT suffered on services or goods purchased.

Good record keeping is a must to complete your VAT return correctly. This is done once every quarter for as long as you are VAT registered.

There is one more thing that needs to be considered before registering for VAT and that’s what VAT scheme would suit your business most. When you register for VAT you will either be on “Standard Accounting” or “Cash Accounting”.
“Standard Accounting” or sometimes referred to as “Invoice Accounting” is when you have to pay VAT when you raise an invoice. The advantage here is that you also can reclaim input VAT at soon as you receive an invoice form your suppliers even if you haven’t yet paid that supplier.
“Cash Accounting” is when you pay VAT to HMRC on output vat and claim back on input vat at the point in which an invoice is paid.

This could provide your business with a cash low advantage.
John is a bookkeeper. He issues an invoice on the 30th March for £100 + VAT which means £120 sales invoice.
Assuming John’s quarterly VAT deadlines are 31st March, 30th June, 30th September and 31st December.
The client pays John on the 1st April so the invoice falls into the quarter ending 31st March but the payment fall into the quarter ending 30th June.
He would have to pay £20 to HMRC by the 30 April or the 7th May if he file’s and pays online.
But if he was on cash accounting he would only have to pay the £20 by 31st July or the 7th August if he was filing online.
This would give him the advantage of keeping the cash for four months before having to pay HMRC.
Also if say the client doesn’t pay John at all then if john was on “Cash Accounting” he wouldn’t have paid HMRC and no harm was done, however if he was on “Invoice Accounting” then he would have to wait 6 months before he can write off the bad debt even if say the client has gone out of business due to bankruptcy and John knows the client won't pay.

Finally, things can be simplified further by using a Flat Rate Scheme. Industry specific rates are set by HMRC and you simply pay that percentage of your invoices over to HMRC, this may result in a lower or higher VAT payment than if you were not on the Flat Rate scheme.

If you require any assistance with VAT or any other tax matter please contact us or get in touch today by calling 0203 039 3993. 

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