VAT is a consumption tax applied to goods and services. Businesses collect VAT on behalf of HMRC and can reclaim VAT on purchases related to their operations. It is not a tax on profits but rather on turnover.
Small businesses must register for VAT if their taxable turnover exceeds £90,000 in a 12-month rolling period. This is known as the small business VAT threshold. However, you can also choose to voluntarily register, even if your turnover is below this amount. For some, this offers the advantage of reclaiming input VAT or appearing more established to clients and suppliers.
Understanding when your small business should register for VAT is crucial, as failing to do so on time can result in financial penalties.
Arrange an appointmentFor any small VAT registered business, there are tangible advantages and considerations to weigh. On the positive side, registering allows you to reclaim VAT on eligible business purchases, which can significantly reduce your costs. It may also enhance your credibility with clients, especially in B2B sectors, and ensures compliance with requirements that support business growth.
On the other hand, VAT registration comes with added responsibilities. You will need to manage VAT returns and keep detailed records, which adds to your administrative workload. If your customers are individuals or smaller organisations not VAT registered themselves, you may find your prices become less competitive. Additionally, cashflow can be affected, especially when VAT must be paid out before it is recovered from clients.
Ultimately, if your business deals primarily with other VAT-registered companies, voluntary registration can be beneficial. If not, it might be worth delaying until you reach the threshold.
Arrange an appointmentRegistration becomes compulsory as soon as your taxable turnover exceeds £90,000 within any 12-month period. HMRC requires prompt action at that point, and there are penalties for late registration. If your business is growing quickly or fluctuating near the threshold, proactive planning is essential to avoid falling foul of the rules.
Beyond compliance, VAT registration can also be a strategic move. Understanding when and how to register can form part of your broader financial and tax planning, particularly when guided by a qualified accountant.
Registering for VAT is predominantly done online through HMRC. To begin, you will need to create a Government Gateway account if you do not already have one. You will be asked to provide information about your business type and structure, your turnover (including estimates of future turnover), your business bank details, and either your National Insurance number (if you are a sole trader) or your company registration number (if you are a limited company).
Once you have submitted your application, HMRC will send you a VAT registration certificate. This document will include your VAT number and confirm the date you became registered. It is important to store this safely and start using your VAT number on your invoices from the date provided.
After your small business is VAT registered, you are required to charge VAT on invoices where applicable and maintain digital records that meet HMRC’s standards. You will also need to submit VAT returns, typically every quarter, detailing the VAT you have charged and the amount you are reclaiming.
These submissions must now comply with Making Tax Digital (MTD) regulations, which means you will need approved software to maintain and file your VAT information. It is a shift that has caught many small businesses off guard, so ensuring you are set up correctly from the outset is crucial.
Sandwell Accountancy Services Ltd provides comprehensive VAT support tailored to the needs of small businesses. From the outset, we can guide you through the registration process, helping you decide whether registering now is the right move and which VAT scheme would best suit your operations.
We manage quarterly VAT return preparation and submission, provide full support with Making Tax Digital compliance, and advise on how to integrate VAT responsibilities with your broader financial planning. Our services are fully aligned with our wider offerings, including bookkeeping, annual tax returns, and payroll, so your entire operation remains compliant and efficient.
To learn more or to speak with one of our experienced team members, contact Sandwell Accountancy Services Ltd today for jargon-free, practical advice tailored to your situation.
Call us today to set up an appointment to discuss your VAT obligations.
Get in touch on 01384 569 197.
