UK VAT registration, whether compulsory or voluntary, can provide a range of benefits to businesses of all sizes. However, there are many obligations and drawbacks to be aware of. Below, we outline the criteria for compulsory VAT registration and discuss the pros and cons of registering a business for Value Added Tax.
VAT registration in the UK is compulsory for all types of businesses, including limited companies and sole traders, when any of the following criteria are met:
Voluntary VAT registration is also available when there is no legal requirement to register. This is worth considering because it offers significant financial and professional benefits to new and small businesses.
Please note: ‘Taxable turnover’ is the amount of money your business makes from selling products and services. This differs from ‘taxable profit’, which is the surplus income that’s left after you’ve deducted business costs and expenses from overall income.
If your business is based in the EU and you distance sell goods that are located in an EU member state to non-VAT registered customers in the UK or Isle of Man, you must register for VAT when:
Non-VAT registered customers include:
Please note that distance selling only applies to goods rather than services.
Sales made to VAT-registered customers do not count as distance sales. Furthermore, if your business is outside the EU, any sales of goods from within a non-EU member state to customers in the UK are not classed as distance sales.
There are also different VAT rules and responsibilities for businesses selling goods in the UK using online marketplaces .
Becoming VAT registered has a number of benefits but there are also certain drawbacks to bear in mind. Whether you’re legally required to register for VAT or choose to register voluntarily, it’s worthwhile familiarising yourself with the pros and cons. This ensures you are fully informed and know what to expect.
To determine whether voluntary UK VAT registration is right for your business, it’s important to weigh up the pros and cons in relation to the goods and services you buy and sell, who and where your customers are, and the type of industry in which you operating.
More often than not, the potential benefits far surpass the burden of additional administration and filing. However, it may be worth speaking to an accountant for professional, tailored advice before making a decision.
VAT can usually be reclaimed on any goods and services that are bought for business use, even on purchases made before the date of VAT registration.
However, VAT on any goods and services purchased for both personal and business use can only be reclaimed proportionately. This may include things like telephone line rental, phone calls and internet costs, computers and laptops, and utility bills in a private residence that is also used for business purposes.
It is important to keep records and valid VAT invoices to support your claims. You will also have to show how you reached the figures for the VAT you are reclaiming.
It is not possible to reclaim VAT on:
You must cancel your VAT registration if your business is no longer eligible to be registered. For example, if you cease trading, stop making VAT-taxable supplies, or join a VAT group. You also have the option to cancel your VAT registration at any time if your VAT-taxable turnover falls below £88,000 the VAT de-registration threshold) or you no longer wish to continue with voluntary registration for any reason.
To cancel VAT registration , you must contact HMRC online or by post (using form VAT7) within 30 days of the date your business stops being eligible. You’ll need to state the reason for de-registration and the date from which your VAT registration should stop. Until this date, you must continue to charge and account for VAT.
Within approximately 3 weeks of submitting the application, HMRC will contact you to confirm the official date of de-registration. You’ll then be required to submit a final VAT return. You must also keep all VAT records for 6 years from the de-registration date.
Normally, the VAT that businesses pay or reclaim is based on the difference between the VAT charged on sales (output tax) and the VAT paid on purchases (input tax).
The VAT Flat Rate Scheme was introduced to reduce the administrative burden on small businesses by allowing them to pay HMRC a fixed rate of VAT instead. This means that you can keep the monetary difference between output and input tax, but you can only reclaim VAT on purchases of capital assets over £2,000.
To be eligible to join this HMRC scheme, your business must be VAT-registered and have an annual VAT-taxable turnover of less than £150,000 (excl. VAT). You can join the Flat Rate Scheme online when you register your company for VAT.
Have you decided that becoming VAT registered is the right path for you and your business? With our VAT Registration Service (£69.99) we’ll take care of your UK VAT registration for you. Here’s what’s included:
Take a look at the link above for more information. Alternatively, contact the Rapid Formations team if you have any questions about this service.
We hope this blog post has been helpful. If you still have any questions about the pros and cons of VAT registration or anything else related to becoming VAT registered, please leave a comment and we’ll be in touch shortly.