In order to effectively illustrate this, let’s take the following scenario:
The turnover of my business has been no higher than £75,000 over a 12-month period since it started trading but has now crept up to £92,000. It reached this point on 5 December 2023. What do I need to do about registering for VAT?
You are required to register for VAT with HM Revenue and Customs (HMRC) because your business turnover has surpassed the £85,000 threshold. To ensure compliance with VAT regulations, you should do this within 30 days of the end of the month that you went over the threshold.
According to HMRC: ‘Your effective date of registration is the first day of the second month after you go over the threshold.’ So, in this case, it means you will need to have registered by 31 January 2024 and your effective registration date will be 1 February 2024.
For any business which realises it’s going to go over the £85,000 mark in the next 30 days, they must register by the end of that period. So, in the above example, say their company (previously not VAT-registered) brings in a new £150,000 deal on 1 January, with payment coming to them within that same month. They would have to register by 30 January.
Lastly, just to clarify what HMRC defines as turnover. It says this is “the total value of everything you sell that is not exempt from VAT.”
How to register for VAT and operate once registered:
- Set Up a VAT Online Account: After registering, you’ll receive a VAT registration certificate from HMRC. This document will provide you with your VAT registration number and the effective date of registration. You’ll also need to set up a VAT online account on the HMRC website.
- Charge VAT to Customers: Once registered, you must charge VAT on your taxable sales to customers. The rate at which you charge VAT will depend on the goods or services you provide. Ensure that your invoices clearly state the VAT amount separately.
- Submit Regular VAT Returns: As a VAT-registered business, you are required to submit regular VAT returns to HMRC, usually on a quarterly basis. These returns detail your sales, purchases, and the amount of VAT you owe or can reclaim.
- Keep Accurate Records: It’s crucial to maintain accurate records of your sales, purchases, and VAT transactions. This will facilitate the VAT return process and help in case of any future audits.
- Consider Flat Rate Scheme: Depending on the nature of your business, you might want to explore the Flat Rate Scheme, which simplifies VAT accounting for small businesses. It allows you to apply a fixed percentage to your turnover rather than calculating the VAT on each sale and purchase individually.
- Inform Your Customers: Notify your customers about the change in your VAT status, especially if your prices will be affected by the addition of VAT.
Remember, failing to register for VAT when required can result in penalties. Therefore, it’s important to take the necessary steps promptly to comply with VAT regulations.
If you’re unsure about any aspect of VAT registration or compliance, consider seeking advice from our CB Reid specialist tax team who are on hand to support your business and personal accounting requirements.