If you want to know how to register for VAT, this is the article for you. It’s a straightforward process so let’s go through the steps together.
What is VAT?
VAT is something you need to register for if your business is already or is expecting to be turning over more than £85,000 (around £1,635 a week).
This is how VAT works.
There are two types of VAT. Input VAT is the VAT your business pays to its suppliers when you’re buying in goods and services. Output VAT is what you charge your customers in VAT when you’re making a sale.
Most businesses pay VAT every quarter. At the end of a quarter, you have one months and seven days to file your VAT return with HMRC and make payment.
To work out the level of VAT you need to pay, add up all the VAT on invoices you’ve issued throughout the quarter. Then, add up all the VAT that are on your suppliers’ invoices to you. The difference between the two is the VAT bill you pay.
What are the rates of VAT?
You charge or are charged VAT at three different rates. The main rate is 20%. There is a reduced rate of 5% on items like utilities, mobility aids for the over 60s and children’s car seats. Finally, there is a zero rate of VAT on products like food, books, children’s clothes, children’s shoes, newspapers, and motorcycle helmets.
HMRC produce a list of the different levels of VAT on different items – click here.
Is cash-accounting VAT better for you?
Under normal VAT rules, VAT becomes payable when you issue an invoice. But, if your business issues invoices giving the customer 30, 60, or even 90 days to pay, you may find that you’re paying VAT on money months before you actually receive it. That could create cash flow problems.
You can use the cash accounting system instead. That’s available for businesses whose turnover is less than £1,350,000. With cash accounting, you only pay VAT on money you’ve actually received. You don’t need to tell the taxman that you’re using cash accounting either.
What is flat rate VAT?
Flat rate VAT was designed by HMRC to make working out VAT easier for smaller businesses.
With flat rate VAT, you don’t claim back input VAT. Instead, you set aside a pre-determined percentage of your VAT inclusive turnover every month.
If you run a travel agency, your flat rate of VAT is 10.5%. Let’s say you sell a no-expense-spared two-week honeymoon to a couple about to be married for £6,000. Excluding VAT, the holiday actually costs £5,000.
Under flat VAT, you put 10.5% of the £6,000 invoice aside – £660. It’s that figure that you put onto your quarterly flat rate VAT return.
At the end of the quarter, add up all the invoices you’ve issued, work out 10.5% of the total, and that’s what you’ll pay in VAT.
To find out the level of flat rate VAT covering your business activity, click here.
Annual accounting VAT
Many businesses are highly seasonal with the vast majority of their cash flow focused into a few weeks or months during the year. This can make keeping enough cash aside to make VAT payments difficult to manage.
HMRC offer an annual accounting scheme which is based upon your previous year’s turnover (or, if you’re a new business, your predicted 12 months’ turnover). Under this system, you submit one VAT return and make four equal payments a year.
As with the cash-accounting scheme, annual accounting VAT is only open to companies whose turnover is £1,350,000 or less.
How to register for VAT
You can register for VAT at any time on the HMRC website.
However, before you start the process, you’ll need a Government Gateway ID.
I don’t have a Government Gateway VAT ID
You start the process at this page – Register for HMRC Taxes.
At the same time as registering for VAT, you’ll also open a Government Gateway account.
Once you have done this, you may have to wait up to two weeks to start the next part of the process.
I do have a Government Gateway VAT ID
Sign in at the Government Gateway entrance and follow the on-screen instructions.
Wise Accountants tip – you’ll need your details, your business’s details, and any Unique Tax Reference numbers applicable.
Once you’ve completed this process, HMRC will send you a VAT registration certificate confirming your VAT number, when your first return and payment are due, and the date you went over the threshold for VAT.
Between registering and receiving your VAT certificate
Even though you won’t have a VAT registration number for a few days, in HMRC’s eyes, you’re a VAT registered business and you need to charge VAT.
If customers are not sure about VAT when you’re invoicing them without a VAT number, let them know that you’re waiting for your registration details. Reassure them by promising to reissue the invoice with your VAT number on as soon as it arrives.
Your new VAT responsibilities
Once you’re registered, you now must charge VAT to your customers.
You’ll be expected to keep good VAT records, submit your VAT returns on time, and pay any VAT that’s due to HMRC on time and in full.
You can use your first VAT return to let HMRC know about purchases you may before you registered that you can claim the VAT back on.
Logging in to submit your return
When you log in, you’ll be given three choices –
• set up a direct debit for VAT payments (not essential but handy)
• make a VAT return
• change your registration details.
Choose “make a VAT return” to provide HMRC with that quarter’s VAT details.
You need to let HMRC know how much VAT you are due to pay.
Once you’ve informed them via their portal, you simply transfer the money into the bank account they give you using the reference number provided.
For most VAT customers, the payment window works like this. Let’s say your VAT quarter is 1st January to 31st March. You then have a month and 7 days to submit your return and make payment meaning you should do both no later than 11.59pm on May 7th.