Registering for VAT

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

One of the benefits of registering for VAT is that the firm can deduct from the output VAT you charge to customers the amount of input VAT it has paid to suppliers to you. However, you cannot deduct input VAT on entertaining or cars capable of private use.

Once a firm has registered for VAT the VAT number must appear on all business correspondence.

Businesses with a turnover lower than £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, though, such businesses can only reclaim input VAT on supplier invoices they have paid in the same period. This helps particularly those businesses that have large accounts receivable outstanding at any one time. Otherwise, VAT is accounted for on the basis of invoices rendered in a particular VAT period.

Businesses with a turnover below £1.35m can also apply to complete an annual VAT return. This means filing only one VAT return a year but means that 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) 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.