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VAT can be confusing to navigate as a business owner, even if you have experience of it. If you’re registering for VAT for the first time it’s useful to think about how this might affect your pricing.

What does VAT have to do with price?

A business must register for VAT once its taxable turnover reaches the VAT registration threshold. If this is all brand new to you, watch our video guide to UK VAT below.

 

 

 

Once they register for VAT, businesses must charge VAT on the taxable sales they make to customers. This leaves you with a choice:

This means that registering for VAT can have a huge effect on the way that you run your business, and charge for goods or services.

How much VAT do I need to charge on goods or services?

The amount of VAT that you charge depends on what you’re selling. The rules for charging and paying VAT are a bit different for goods and services that you import or export.

We explain this in more detail in our series of articles about Brexit and VAT. To make things easier in this article, we talk about VAT for goods and services which UK businesses sell within the UK.

The different rates of UK VAT

VAT Category VAT Rate What it
Standard rate Charged at 20% as of the 2020-21 tax year. The majority of goods and services sold fall under the standard rate of VAT.
Reduced rate The reduced rate of VAT is currently 5%. Reduced rate items include children’s car seats, domestic fuel, and mobility aids for those over the age of 60.
Zero rate 0% Some goods or services are zero-rated for VAT. These include books, newspapers, children’s clothes and motorcycle helmets. The sale is still VAT taxable, but at a rate of 0%. You must still record these sales in your VAT accounts, and report them on your VAT return.

 
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Pricing considerations when charging VAT

There are several factors which might affect your thought process towards pricing after registering for VAT.

Who are your primary customers?

Your customers or target market might influence your pricing structure. For instance, are they other businesses (B2B), or are they general consumers (B2C) buying for their own personal use?

If you mostly sell to other businesses, do they tend to be VAT registered? This usually means they’ll be able to reclaim any VAT against their own VAT return, though paying the VAT to you might affect their short-term cashflow.

Consumers who aren’t registered for VAT may be put off by a 20% increase on the price they normally pay. But, if you don’t add it on, you’ll be the one paying the VAT, rather than collecting it from your customers. Like most business decisions, the best solution depends on personal circumstances, but it might be worth considering:

What rate of VAT applies to your goods or services?

If the things that you sell fall into the reduced rate or zero-VAT category, it makes pricing fairly straightforward. Charging customers an additional 5% isn’t so dramatic a price hike, and zero-rated items are better yet. If you’re not sure which VAT rate to use, the government publish a list of VAT rates on different goods and services.

Ready to register for VAT?

Not every business needs to register for VAT and in fact many won’t ever have to. Whilst you’re obliged to register for VAT if your taxable turnover reaches the £85,000 threshold in any 12 month period, some businesses do benefit from voluntarily registering for VAT.

Should you voluntarily register for VAT?

Again, everyone’s different, so whether or not voluntary VAT registration is a good idea depends on your circumstances. If you have an accountant, have a chat with them about what works for you. It’s worth thinking about what some of these points will mean for you.

 
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How do you register for VAT?

Whether you have reached the threshold or are voluntarily registering, the process is the same. You can register for VAT online, or by post, or through an agent. Most businesses will be able to register online, including partnerships and groups of companies.

Register online

To register online, you will need to sign into your tax account and complete the online form. HMRC will send you a VAT number within 30 days, and you will then need a VAT online account to submit your returns.

Using an agent

Rather than doing it all yourself, you can appoint your accountant to act as an agent. They will register you for VAT and submit returns, saving you time and stress.

Registering by post

Registering online is usually more convenient but there are some instances where you can’t register online, and should use a postal VAT1 form instead. These include:

Responsibilities as a VAT registered business

Once you’re ready to go as a newly registered VAT business, it’s time to look at the next steps. What does it really mean to be VAT registered? What do you have to do differently now? Being VAT registered means:

 

Check out our Making Tax Digital Information Hub for more information.

How to reclaim VAT

Registering for VAT isn’t all about handing more money over to the government; you might be able to claim some of that VAT back. Businesses pay VAT on purchases all the time, even if they’re not registered themselves, because their suppliers are.

If the total amount of VAT paid on purchases is more than the VAT collected from customers on sales, you can reclaim the difference. If you collect more than you pay, then you’ll pay the difference to HMRC as your VAT bill. This is worked out as part of your VAT return, and you will be notified how much VAT you owe, or is owed to you.
 
Learn more about our online accounting and VAT services. Call 020 3355 4047 to talk to one of the team, or grab a free online quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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