Registering for VAT

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

Supplies of goods or services can be subject to standard 17.5% VAT, can be zero-rated or might be exempt depending on the nature of the goods or services supplied, where the supply happens, who the customer is, and some supplies can even be a mixture of these types, so getting the right advice at the beginning is vital.  Care must be exercised, though, to keep matters under review because businesses can change and what was standard-rated one time might not be in the future.  

One of the benefits of registering for VAT is that you can potentially deduct from the output VAT you charge to customers the amount of input VAT you have paid to your suppliers. However, you cannot deduct input VAT on things like entertaining or cars capable of private use and there are rules that affect recoverability of input VAT where supplies are for a mixed purpose (especially if a business has a significant proportion of exempt supplies).

The correct treatment of VAT in the case of property is especially important and we can advise on whether it is beneficial to opt to tax land and buildings.

Broadly, you cannot reclaim input VAT that you suffered before you registered for VAT, though it is possible to reclaim VAT incurred on certain pre-trading expenditure.

Once you are registered for VAT you are issued with a VAT number and it must appear on all business correspondence.

Businesses with a turnover lower than £1.35m can deal with VAT on a “cash” basis and can even choose to submit one VAT return a year.  Special schemes are available for certain types of business and optional flat rate schemes exist to simplify the VAT returns and calculations for small businesses.

On the “cash basis”, for example, businesses only need to account for output VAT on sales invoices that have actually been paid in a particular return period but, on the other hand, can only reclaim input VAT on supplier invoices 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 and received in a particular VAT period.

For businesses who qualify to make one VAT return a year, quarterly payments of VAT due must still be made but the instalments tend to be fixed in advance and are based on estimates initially (with a balancing payment or refund once the VAT return has been filed).

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 particular 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 also produce a range of informative leaflets.