VAT isn’t the simplest thing to get your head around, though at times the terminology makes it seem more complex. We explain what VAT might mean for your business, and include a VAT jargon-buster to help you get going.
The Terms – what you must do for VAT
If any of the below are true, then you mustregister for VAT:
your business’ VAT taxable turnover is more than £85,000 in a 12-month period.
You expect your taxable turnover to go over £85,000 within a 12-month period
You only sell goods or services that are exempt from VAT or ‘out of scope’ but you buy goods for more than £85,000 from EU VAT-registered suppliers to use in your business.
You MUST register for VAT immediately if you expect to go over the registration threshold in a single 30-day period
You SHOULD consider registering for VAT if your taxable turnover is less than £85,000 but you mainly deal with businesses and individuals registered for VAT – or if you know you will be close to the registration threshold.
When you register, you’ll be sent a VAT registration certificate. This will tell you your VAT number, the submission date for your first VAT Return and payment and your ‘effective date of registration’ (the date you went over the threshold or requested voluntary registration).
You can register voluntarily if your turnover is less than £85,000, unless everything you sell is VAT exempt. You’ll still have the same responsibilities if you register for VAT.
You must charge the correct amount of VAT to your customers, pay any VAT due to HMRC, submit your VAT Returns, keep records and a VAT account.
You can’t charge or show VAT on your invoices until you get your VAT number, which will be on your certificate.
As you’ll still have to pay the VAT to HMRC for this period, HMRC recommends that you increase your prices to allow for this and tell your customers why. Once you’ve got your VAT number, you can reissue the invoices showing the VAT.
VAT Terminology A-Z
For VAT purposes, this isn’t a calendar or financial/tax year – it’s a rolling 12-month period. So, if you’re near the threshold, you’ll need to keep a careful eye on your figures. If you over the threshold in any 12-month period, you must register for VAT.
Effective date of registration
The date you went over the threshold or requested voluntary registration.
Out of scope
This refers to goods and services outside the VAT tax system, so you can’t charge or reclaim the VAT on them. This includes goods or services you:
buy and use outside of the EU
statutory fees (e.g. the London congestion charge)
goods you sell as part of a hobby (e.g. collectibles)
charity donations (providing you don’t receive anything in return)
You can apply for a registration ‘exception’ if your taxable turnover goes over the threshold temporarily. Write to HMRC with evidence showing why you believe your VAT taxable turnover won’t go over the de-registration threshold of £83,000 in the next 12 months. HMRC will either confirm your exception or register you for VAT.
The taxable turnover figure that makes your business liable for compulsory VAT registration. The current threshold is £85,000. It usually increases on 1 April each year.
Reverse charge (domestic)
There are some goods and services for which It is the responsibility of the customer, rather than the supplier, to account to HM Revenue and Customs (HMRC) for VAT.
Goods and services to which the reverse charge applies are mobile phones, computer chips, wholesale gas and electricity, and emission allowances.
Supplies and services that you can’t charge VAT on, for example insurance, postage stamps or services and health services provided by doctors. The Government website has a full list of goods and services that are VAT exempt.
VAT taxable turnover
VAT taxable turnover is the total value of your UK sales that aren’t VAT exempt, including:
goods you hired or loaned to customers
business goods used for personal reasons
goods you bartered, part-exchanged or gave as gifts
services you received from businesses in other countries that you had to ‘reverse charge’
building work over £100,000 which your business did for itself
any zero-rated items
Zero-rated means that the goods are still VAT-taxable but the rate of VAT you must charge your customers is 0%. You still have to record them in your VAT accounts and report them on your VAT Return. Examples include children’s clothes and shoes, or motorcycle helmets.
If you sent goods to the EU, you’ll need their VAT number and paperwork proving that the goods have been sent within certain time limits (usually 3 months).
Talk to one of the team about our online accountant services for your business. Call 020 3355 4047, or use the live chat button on screen.
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About The Author
I'm an AAT and ACA qualified Chartered Accountant with over 13 years experience working with businesses, contractors and sole traders. I also love watching live music, and quizzes!
Learn more about Dean.