VAT: What, When, Why, How?

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Ok, not the most glamorous and exciting of blog posts, but I get lots of questions about VAT so here are the top ones and my answers:

When do I need to register for VAT

The VAT registration threshold has been frozen at £85,000 for the tax years 17/18, 18/19 and 19/20 (assuming legislation doesn’t change!), if your VAT taxable turnover is going to exceed this in a rolling 12 month period then you must register or if you expect to go over the threshold in the next 30 days.

What is “VAT taxable turnover”

This is the total sales of items that would be subject to VAT and any items that would be zero rated for VAT (exempt items are excluded).

What does “rolling 12 month period” mean

This isn’t a calendar year, it isn’t the financial year of the business, it is worked out as follows:

We are currently in February so the rolling 12 month period at the moment is March 2017 to Feb 2018.  When we move to March, it will become April 2017 to March 2018 .. this means you could be say just below the threshold and never quite hit it.

How do I register

Registration is done online ( .. link is on the top line under the heading “register for VAT” and is relatively straight forward to do but make sure you note down all logins and passwords that you set, the accounting periods you select etc too as you will need these to complete you returns.

“Bother” I got a new computer 2 months ago and paid VAT ... is there anything I can do?

YES! Surprisingly HMRC are actually quiet generous on this.

  • Goods purchased in the 4 years before registration can have the VAT claimed back on them provided you still have them

  • Services paid for in the last 6 months can have the VAT claimed back on them

These claims need to be in your first VAT return after you register.

I’m registered – what do I need to include on my invoices?

You need to add VAT at 20% to your sales (presuming that they are taxable supplies) and you need to have your VAT number on all your invoices.

I heard you can register voluntarily, why would I want to do that?

Depending on your business, you might be in a position where you incur VAT on your purchases but your sales are zero-rated and this means if you register for VAT you can reclaim the VAT on your purchases.

You might be a small business and below the threshold but are working purely with big businesses who are all VAT registered, so if you register the additional 20% on your invoices makes no difference to them as they reclaim the VAT but it means you can reclaim the VAT on your purchases, which could make a difference to you.

What is the Flat Rate Scheme and should I join in?

The flat rate VAT scheme is a simplified VAT scheme whereby rather than recording the VAT you have paid on your supplies you simply paid a set percentage of your gross turnover (VAT inclusive sales) to HMRC and this percentage is then paid to HMRC.

Originally the scheme was great as contractors particularly had a very favourable percentage but that has been impacted by the introduction on the “limited cost business” rate of 16.5% which basically means that on a £1,000 invoice you charge £200 in VAT and then pay 16.5% of the £1,200 total to HMRC which is £198 .. so you “gain” £2.  If you have much in the way of VATable purchases so it takes some careful review to see if the Flat Rate Scheme is right for you.

I want to know more about VAT!

If you want to read more and find out about other schemes ie cash accounting, VATMOSS, etc then head over to HMRC for all the VAT information you could possibly want (and more!)