When do I have to register for VAT?

VAT (Value Added Tax) might just be one of the most hated of taxes!

The basic idea is that tax is added to the cost of goods and services, and the business becomes a tax collector. 

How it works is that the business, when VAT registered, adds VAT to the goods and services it sells. The business is also charged VAT on goods and services it buys. The business then pays the difference between VAT collected, and VAT suffered over to HMRC. 

When you register, you’ll be sent a VAT registration certificate. 

This confirms:

• your VAT number

• when to submit your first VAT Return and payment

• your ‘effective date of registration’ - this depends on the date you went over the threshold, or is the date you asked to register if it was voluntary

You can also view a copy of your VAT certificate by logging into your VAT account https://www.gov.uk/send-vat-return 

Mandatory VAT registration

UK businesses are required to register for VAT when their revenue, in a rolling 12-month period exceeds £85,000 (or their revenue in the next 30 days will exceed £85k).

When your revenue reaches the threshold test, 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, let’s say you breach the threshold at the end of March 2021 (i.e. 31st March 2021). That means you have to register before 30th April 2021, and your effective date is 1st May 2021. 

If you register late, you must pay what you owe from when you should have registered.

You may get a penalty depending on how much you owe and how late your registration is.

Voluntary VAT registration

You can also register for VAT voluntarily, even if your business does not meet the threshold levels. 

There are a few reasons why businesses would choose to voluntarily register.

Firstly, your business can appear bigger, with people assuming you have reached the threshold if you are VAT registered.

Secondly, there are some industries that have a very high level of VAT costs, and therefore voluntary VAT registration is chosen to reclaim the VAT charged. 

If you are voluntarily VAT registered your business (for VAT purposes) is treated in exactly the same way as if you had to mandatorily register.

To register for VAT with HMRC you can go here - https://www.gov.uk/vat-registration/how-to-register and follow the instructions.

Adding VAT to your prices

From your effective date of registration you must:

• charge the right amount of VAT

• pay any VAT due to HMRC

• submit VAT Returns

• keep VAT records and a VAT account

Most VAT registered businesses that earn over £85,000 must also follow the rules for ‘Making Tax Digital for VAT’.

Once you are registered for VAT you are required to charge VAT on your sales. 

The VAT percentage you charge depends on the products or services you are selling - but the standard VAT rate is 20%.

Making Tax Digital for VAT

VAT registered businesses with a taxable turnover of more than £85,000 must follow the rules for ‘Making Tax Digital for VAT’ by keeping some records digitally, unless:

• your business uses the VAT GIANT service, for example if you’re a government department or an NHS Trust
• you apply for an exemption

You can choose to sign up to Making Tax Digital for VAT if your business earns less than £85,000.

From 1 April 2022 all VAT registered businesses must sign up, whatever they earn.

Records you must keep digitally

You need to keep the following records digitally:

• your business name, address and VAT registration number
• any VAT accounting schemes you use
• the VAT on goods and services you supply, for example everything you sell, lease, transfer or hire out (supplies made)
• the VAT on goods and services you receive, for example everything you buy, lease, rent or hire (supplies received)
• any adjustments you make to a return
• the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
• the rate of VAT charged on goods and services you supply
• reverse charge transactions - where you record the VAT on both the sale price and the purchase price of goods and services you buy
• your total daily gross takings if you use a retail scheme
• items you can reclaim VAT on if you use the Flat Rate Scheme
• your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme

You also need to keep digital copies of documents that cover multiple transactions made on behalf of your business by:

• volunteers for charity fundraising
• a third party business
• employees for expenses in petty cash

You must add all your transactions to your digital records, but you do not need to scan paper records like invoices or receipts.

How to keep digital records

You need to use a compatible software package or other software (like spreadsheets) that connect to HMRC systems.

If you use more than one software package to keep records and submit returns, you need to link them.

Some ways you can link your software include:

• using formulas to link cells in spreadsheets
• emailing records
• putting records on a portable device to give to your agent
• importing and exporting XML and CSV files
• downloading and uploading files

You must have links between the software you use by your first VAT period after 1 April 2021.

Are you ready to register for VAT?

If you are ready to register you can do so here - https://www.gov.uk/vat-registration/how-to-register 

You might also be interested in finding out about the VAT schemes available for your business: 

Flate Rate Scheme

Annual Accounting Scheme

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