VAT Registration in the UK

VAT Registration in the UK

VAT, also known as Value Added Tax is a tax levied on the value added to many goods and services at each stage of production or distribution. In the United Kingdom, VAT is a crucial aspect of doing business. Aside from being crucial for business, VAT is also important for property business so that they can understand how to register for VAT, and also when to register for VAT. 

Whether you are an experienced property investor or you are just starting your journey, understanding VAT will make that journey easier. 

In this easy-to-follow guide, we will go through everything you will need to know about VAT registration. Starting with topics like VAT registration (meaning and importance), how to register and when to do it in the UK. We will also cover topics as who needs to register, the registration process, information that you will need and many more.

VAT Registration

Simply put, VAT registration is the process of listing your business with the government as a business active in production and sales. When registering for VAT, it is very important to know that when you do so, you become both the collector and the claimant. This means that the business becomes responsible for both the output and input taxes. 

Voluntary VAT Registration

It is also possible for businesses with taxable turnover to voluntarily register for VAT. This choice comes with some special benefits. Volunteering for VAT registration could potentially enhance your business’ credibility and facilitate smoother interactions with other VAT – registered organizations. It will also develop the ability to recover input VAT on purchases, which will lead to potential cost savings. Volunteering will come in handy with late registration penalties placed by HMRC.

Notifying HMRC

You must notify HMRC within 30 days after the month when the threshold limit is surpassed. It could also be done within 30 days, starting the day on which you noticed that the supplies in the next 30 days will surpass the threshold. 

How can you notify HMRC? Very easy. You can notify them by using the VAT online service. After notifying HMRC you must start adding VAT to the sales starting from the 1st day of the next month.

Advantages of Voluntary VAT Registration

The advantages of voluntary registration for VAT include:

  • You can reclaim VAT on the goods and services purchased by your business.

When your business starts growing, you may reach a turnover of £85,000. If you register for VAT before reaching this number, you can save time and energy of adjusting your prices to include VAT rates.

Disadvantages of Voluntary VAT Registration

Aside from the advantages, there are also disadvantages of registering for VAT. 

  • When you start charging VAT, it is very common to include the tax in your prices. However, when you do so, the products or services will appear more expensive for the customer.
  • When you become a VAT registered, you will need to file VAT returns, keep VAT invoices and receipts, and maintain accounting records for VAT.

Types of Deregistration

There are two main types of deregistration. Compulsory deregistration and voluntary deregistration.

Compulsory Deregistration

This type of deregistration can happen when a business goes through a change. For example: transitioning from a sole trader to a limited company, or when it fails to provide taxable goods and switches to exempt supplies.

In this case, HMRC has to be informed within 30 days. The deregistration will be effective from the date of the relevant event.

Voluntary Deregistration

This type of deregistration is only an option when a business is awaiting for its taxable supplies to be lower. By lower, it means they are expected to be less than £88.000 in the next 12 months. Voluntary deregistration starts from the date when HMRC was notified or a later date, depending on the agreement of both parties.

Who Should Register For VAT?

Do I need to be VAT registered? Determining whether VAT registration is needed within the property sector is based on the nature of rental income. Usually, residential landlords do not qualify for this registration, as their income is from residential properties, such as houses or apartments.

On the other hand, those who are involved in commercial property rentals can easily qualify for VAT, especially if the property is opted for taxation.

Property developers and construction companies often find registering for VAT to be advantageous for them. Their spending on materials, labor, and services will lead to saving money and enhance financial competitiveness. Importantly, the decision of registering for VAT should be carefully made, after considering all the advantages and disadvantages for your business.

Benefits of VAT Registration

There are benefits that come along with the VAT registration. Once you become VAT registered,  you will not pay VAT on business expenses. You will continue to get charged the VAT-inclusive price when you make the purchase. However, you can claim the money back, once you file your return with the HMRC.

When to Register for VAT in the UK

When to register for VAT can vary. You must register if:

  • Your total VAT tax turnover for the last 12 months was over £90.000 (the VAT threshold).
  • You expect your turnover to go over £90.000 in the next month or so.

Regardless of VAT tax turnover, you should also register if:

  • You are based outside the United Kingdom.
  • Your business is based outside the UK.
  • You supply any goods or services to the UK (or you expect to do so in the next month or so).

Calculating VAT Tax Turnover

Your tax turnover is the total value or amount of everything you sell, which is not exempt from VAT. This typically includes: 

  • Zero-rated goods
  • Goods you hired or loaned to customers
  • Business goods that you used for personal reasons
  • Goods you gave as gifts
  • Services that you received from businesses in other countries that you had to “reverse charge”
  • Building work over  £100.000 your business did for itself

Late Registration

In case you forget to apply for VAT on time, but decide to apply after the deadline, you need to know something important. You should keep in mind that you must pay VAT on any sales you have made. This includes paying for sales since the date you should have registered.

If you go over the threshold 

You can always apply for a registration “exception” if your tax turnover goes over the threshold. If this happens, then you should inform HMRC with evidence. You need to show why you believe your VAT tax turnover will not go over £88.000 in the next 12 months. 

HMRC will consider your exception and will contact you to confirm if you will get it. If not, they will automatically register you for VAT.

How to Register for the VAT?

The process of how to become VAT-registered or have VAT registered businesses is not very hard. In fact, it is very easy to register. You can register through HMRC online website.

What You Would Need to Register

In case you have decided that you will register, there are a few things to provide before doing so. That includes:

  • Your national insurance number or your tax identifier number will be needed 
  • In case that you have owned another business in the past 2 years, then you will need the details
  • Your business bank account details
  • If you have bought the business, you should also supply records of the sale.

Choosing a VAT Accounting Scheme

During the process, you will be asked what VAT accounting scheme you will use. In case you do not know what VAT accounting scheme is, it is how HMRC calculates whether you owe VAT, or will get a refund.  Here are four of the most common accounting schemes that you can use:

  • Most businesses have to use standard VAT accounting. This is done by recording the VAT collected on each sale and the VAT paid on each purchase. When collected, you submit a VAT return to HMRC every quarter.
  • You can use annual VAT accounting. Some businesses can submit a VAT return only once a year. However, they still have to pay quarterly. Those payments will be based on your last return or an estimate.
  • You can also join a flat-rate scheme. Some smaller businesses can skip the VAT accounting and instead pay a percentage of their turnover as VAT. A bookkeeper or even an accountant can help you find out whether or not this will make sense for your business.
  • The last possibility is using a cash accounting scheme. Under this accounting, you are supposed to collect or pay VAT when money changes hands. In other types of accounting schemes, you have to collect or pay VAT as soon as an invoice is raised.

Keeping Digital Records

Keeping digital records for VAT is very important. The records that you have to keep are the same for any VAT registered business. The only difference is that you will need to keep some of them digitally. 

What is equally important, is to comply with Making Tax Digital. HMRC can visit your business and conduct an inspection. They will inspect your record keeping and will charge you a penalty if your records are not in order.

How to Keep Digital Records

What a VAT registered business must do is:

  • Keep records of all the sales and purchases
  • Keep a separate summary of VAT (also called a VAT account)
  • Issue correct VAT invoices

All of the records have to be:

  • Kept for at least 6 years (or 10 years if you previously used the VAT MOSS service)
  • All records must be accurate, complete, and readable

VAT Registration UK

VAT registration UK is just the same as any other VAT registration. There is very important information that is required to register for VAT UK. This includes:

  • Foreign businesses are required to complete a Form VAT 1 for the supply of taxable goods and services to the UK. 
  • Completing the Form VAT1A for distance selling into the UK.
  • For additional information, the HMRC can contact applicants.

Format of a UK VAT Number

The process of granting the registration usually takes 4 to 6 weeks, from the submission of the VAT registration from. Then a unique UK VAT number is sent to the company. All EU member states have a fixed format of the VAT numbers. 

In the UK, the number (VAT registration number) has the prefix GB followed by 9 digits. It will look something like this: GB 123456789. Once the business has obtained its VAT number, it is free to start trading and charging UK VAT. However, it has to follow the UK VAT compliance rules, and file regular returns.

UK VAT Compliance Rules

Once a business or a foreign enterprise has obtained its UK VAT number, it has to follow the VAT Act. The rules include:

  • Preparing invoices with the closure details which were outlined in the UK VAT Act
  • Electronic invoices with a proper signature, authenticity, and agreement by the recipient
  • Maintenance of accounts and records, which have to be kept for at least 7 years
  • Correct invoicing of customers for goods or services in accordance with the UK VAT rules
  • Processing of credit notes and other corrections
  • And use of approved foreign currency rates

Tax Point for UK VAT

The tax point rules in the UK determine when the VAT is due. For most goods the tax point or time of supply, is the time of delivery or passage of title. While for services it is a little bit different. Usually for services, it is when services are completed.

UK VAT Rates

In the UK, suppliers of goods and services have to charge an appropriate VAT rate. They also have to collect the tax for onward payment and follow a set of rules. 

VAT Rates for the United Kingdom

There are different types of VAT rates that can be applied in the UK. They can vary according to the type of business.

Every supplier of goods or services who is VAT registered in the United Kingdom must charge the appropriate VAT rate. They also must collect the tax for onward payment to the UK tax authorities through a VAT filing. The following list shows what the current rates are:

  1. Standard rated also known as 20%: alcoholic drinks, biscuits (chocolate covered only), bottled water (mineral water), calendars and diaries, fizzy drinks, CDs/DVDs/video games and tapes, cereal bars, clothes and footwear (not for children under 14), sweets, delivery charges (packaging), electrical goods, gas/heating oil and solid fuel (for business), food and drinks (in restaurants, cafes, etc.), and more.
  2. Reduced rated also known as 5%: children’s car seats, electricity/gas/heating oil and solid fuel (domestic/residential), maternity pads, mobility aids for the elderly and smoking products.
  3. Zero rated also known as 0%: aircraft, bicycle and motorcycle helmets, biscuits, books/maps and charts, bread/rolls and pitta bread, brochures and leaflets, building services for disabled people, cakes, canned and frozen food (not ice cream), cereals, frozen ready meals, clothes and footwear (for children under 14 only), cooking oil, donated goods sold at charity shops, eggs, energy saving materials, equipment for disabled people (including blind or partially sighted people), fish, fruit, vegetables, meat, mild, butter, cheese, and more.
  4. Exempts: antiques, burial or cremation (human), commercial land and buildings, museums, art exhibitions, zoos, performances, education, financial services (money transactions, loans, credits, savings, deposits, shares, bonds), funeral plan insurance, health services (doctors, dentists, opticians, pharmacists and others), insurance, medical treatment and care, and more.
  5. Outside: goods and services sold outside the EU, goods and services supplied by unregistered suppliers, statutory fees and services (MOT testing, congestion charge), tolls for bridges/tunnels and roads, voluntary donations to charity.

Conclusion

Even though VAT rules and regulations might seem too complex, they are an important part for businesses operating in the UK. By engaging in careful planning and using digital resources, you can make the process easy. By using these resources, you can make the VAT registration procedure simple and easy. 

Being a VAT registered business can offer you with many opportunities to grow and will help you gain financial stability.

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