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Registering for VAT

What is VAT?


Value Added Tax (VAT) is a tax collected on the sale of your goods or services and relinquished on the purchasing of the goods or services that will be used in your business. The administration of VAT in the UK is managed by HM Revenue and Custom.

Should my company be VAT registered?


VAT registration is only compulsory once the turnover of your company exceeds or is likely to exceed the government threshold of £90,000 (2024-2025) for any rolling 12 month period. You can register for VAT on a voluntary basis at any point up until when your company's turnover exceeds the abovementioned threshold. There are essentially a number of considerations to take into account when deciding whether or not to register for VAT.
  • Will my company ever exceed the threshold? If you do not envisage that your company will turnover in excess of the threshold then you may wish to avoid becoming registered for VAT in order to simplify your accounting responsibilities. You must however be careful when making this decision as if during any period you exceed the threshold and you fail to register for VAT you may face financial penalties.
  • When should I register for VAT? You can voluntarily register for VAT at anytime before you reach the threshold. Many new businesses who expect to turnover more than £90,000 per year choose to register before they commence trading, this means that they are not burdened with the administrative work associated with changing their accounting system and re-pricing their products and services later down the line. Many new businesses also invest a large proportion of their income and capital in establishing the company in the early stages, the advantage of being VAT registered from the onset means that the VAT paid on these expenses can be reclaimed.
  • Being VAT registered may assist you in forming relations with other companies. Many larger companies may prefer to deal with other VAT registered companies as it can be an indication of their size and commitment to their area of business.

What are the rates of VAT ?


It is important firstly to remember that VAT is a tax that is calculated on the sale of the items you buy and sell through your business. There are various rates of tax for different types of products and services. The standard rate for which most items apply is 20%, this means if you sell a product or service to a customer they must pay an additional 20% on the sale price. In the same respect if you buy a product from a VAT registered business, 20% of the sale price will be calculated as VAT. Here are the main rates of VAT in the UK :
  • Standard Rate (20%) - Most goods and services
  • Reduced Rate (5%) - Fuel and power used in the home and by charities, children's clothing, women's sanitary products etc?
  • Zero Rated (0%) - Certain products and services where VAT is not applicable e.g. stamps
    The above rates are accurate as of August 2023.

How and when do I pay or receive VAT from the Revenue ?


Most companies pay their VAT on a quarterly basis to the Revenue. It is important to remember however that any VAT collected through your company must be accounted for separately from that of your normal sales revenue. The VAT you collect is not yours or your company's money, rather it is being looked after temporarily until you make your next payment to the Revenue. Your company's VAT should be treated like a liability that is based on the net difference between the VAT you have collected and that VAT you have paid when purchasing goods and services for your company. It is this amount that must is calculated and paid to the Revenue on a quarterly basis. If you are collecting large sums of VAT then you may wish to consider holding your VAT reserves in a high interest account.

At the end of each VAT quarter a company must complete a VAT return form that is sent back to the Revenue with the appropriate payment. The VAT return includes a series of boxes where you can input the total of the VAT collected on your sales and the VAT you are reclaiming on your purchases along with several other boxes for sales and purchases made in EC Member States. You can also now complete your VAT return online and pay by direct debit.

How do I account for VAT?


VAT is accounted for at the point of sale not when the funds change hands (Unless you are using the Cash Accounting Scheme). For example if you provide a 30 day credit facility for a customer purchasing a product or service from your company then ordinarily once the invoice has been raised your company will take on a liability to the Revenue for the VAT amount of the sale.

The easiest way to manage your VAT responsibilities is by using a dedicated platform such as the QuickFile Cloud Accountancy System. This type of software will enable you to maintain an account that you can use to track your net VAT liability to the Revenue. At the end of your VAT period the software will automatically show you what figures which can be electronically filed with HMRC.

What is the Cash Accounting Scheme?


The Cash Accounting Scheme is a system for managing VAT that can be used by companies with a VAT taxable turnover below £1,350,000 (2024/25). Essentially Cash accounting enables you to calculate VAT on the basis of when the funds have been paid rather than the point at which an invoice is raised. This accounting system is particularly useful for companies that typical have a long period of time between when they issue the sales invoice to when they receive payment.

VAT Cash Accounting vs Accrual Accounting

Important VAT Requirements


When your company becomes VAT registered you must comply with the VAT regulations that affect your business. It is beyond the scope of this guide to provide a full analysis of the VAT regulations that affect a given business however here are a few of the key requirements:

  • When you sell goods or services that incorporate a VAT charge you must supply your customer with a VAT invoice. Generally the VAT invoice should include the VAT amount paid, your companies VAT registration number, a unique invoice number and the date the invoice was raised.
  • You must retain all VAT records including invoices and receipts for a 6 year period. These may be required by law. Remember that a VAT receipt for a purchase you have made through your business is a right to claim back the VAT paid, without this you legally have no right to claim back the VAT.
  • You must notify HM Revenue and Customs within 30 days if any of the details for your company change.
  • You must charge VAT on supplies made to the company's employees or inter-company transactions.
  • You should not claim back VAT on personal expenses.
  • How do I register my company for VAT?


You can register your company for VAT directly with HMRC using their VAT Registration Service. If you are registering on a voluntary basis then you must show intent to trade, the Revenue will normally request invoices that have been paid by the company as proof that you are applying for legitimate purposes.

Useful links


You may find the following links useful in answering any further questions you may have about registering for VAT.

HM Revenue and Customs - The government agency responsible for the collection and administration of VAT (Formerly Customs & Excise).
Gov.uk - VAT - A Government help centre for small businesses



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