Registering for VAT

Whether a company must register for VAT depends on a number of factors. If the nature of its trade or profession is such that its activities are either outside the scope of VAT or wholly exempt, it does not need to register at all. However, if its supplies are liable to VAT (or would have been liable if it had registered) it must register for VAT when the total value of your taxable supplies exceeds the registration limit set annually. Thereafter, the company must charge output VAT on its supplies, must maintain suitable VAT records and must make VAT returns to Customs & Excise (though see below).

Once registered for VAT the VAT number and it must appear on all business correspondence.

Businesses with a turnover below £1.35m can deal with VAT on a “cash” basis; that is, they only need to account for output VAT on sales invoices that have actually been paid in a particular return period. As a result, such businesses can only reclaim input VAT on supplier invoices is has paid in the same period. This helps particularly those businesses who have large accounts receivable outstanding at any time. Otherwise, VAT is accounted for on the basis of invoices rendered in a particular VAT period. Such businesses with a turnover below £1.35m can also apply an annual VAT return. This means filing one VAT return a year but payments on account continue to be made quarterly.

VAT returns are normally made quarterly and it is always possible to align VAT periods with the accounting year, a step which saves time and cost when it comes to preparing the annual accounts. Some businesses have a large proportion of zero-rated supplies (as opposed to exempt ones) and so routinely get refunds from Customs & Excise – such businesses can complete monthly returns to assist cash flow.

Certain types of business must operate special VAT schemes, which are beyond the scope of this note. These include retailers, art and antique dealers, second-hand car dealers and a list of others. These schemes are designed to make VAT simpler. Specialist advice is available should this apply to you and Customs & Excise produce a range of informative leaflets.