If you’re a business in the U.K, there is a chance that you have come across the word Value-Added Tax (VAT) or probably charge it to consumers. However, not all businesses are required to own one. Start-ups or businesses who charge VAT are required to register and pay their dues to Her Majesty’s Revenue and Customs (HMRC).
A VAT number is usually 9-digits long, excluding the (GB) country code at the beginning of each number. This unique identifier allows the HMRC to determine how much VAT you should pay for the goods or services you sell online or offline. Getting a VAT number is a straightforward process and this article will provide a checklist of six things you need to know before applying for a VAT number in the U.K.
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What is VAT?
VAT is an acronym for Value Added Tax. It is a sales tax levied on the value of goods or services sold to customers by VAT-registered merchants. According to the legislation, UK traders with sales (turnover) above the VAT level of £85,000 must register for VAT and charge it on deliveries of goods or services.
What is the VAT Rate Imposed by HMRC?
VAT is charged at a regular rate of 20%. Certain items are taxed at a lesser rate, such as children’s apparel, which is charged at 0%, while household fuel, such as gas and electricity, is charged at a reduced rate of 5%.
Six Things you need to Know When registering for a VAT number
1). Are all Sales Liable to the VAT Sales Tax?
They aren’t, no. Some traders are not VAT registered because their firms have a limited turnover (sales), therefore they are unable to charge VAT on their sales (unless they voluntarily register) – and some business activities are exempt from VAT.
2). How do I register for VAT?
Most businesses can register for a VAT number online. To complete the application for a VAT number, you need to complete the VAT1 form that can be accessed on the HMRC website if you cannot register online. This form is equally useful if you want to apply for a registration exception or registering separate business units under the same corporate body for tax purposes.
3). Getting a VAT certificate
After registering for a VAT number, you will most likely get a VAT registration certificate in 30 days although this could take longer due to disruptions from Brexit. Your VAT registration number will either be sent to your online VAT account or be posted to you if you used an agent to register for your VAT number.
4). Registering for a VAT number in European Union countries
If you sell to consumers and businesses in the EU, you may need to register for VAT in EU countries. If you are a software or communications company, for example, providing digital services to EU customers, you are required to register for the VAT Mini One Stop Shop (MOSS) in any EU country.
5). Other VAT Schemes: Annual Accounting, Cash Accounting, and Flat rate
VAT-registered businesses usually register and submit their VAT returns to HMRC four times each year. However, under the Annual Accounting Scheme, you may submit one VAT return annually and equally make advance payments to HMRC.
If your estimated VAT taxable turnover in the next twelve months is forecast to be £1.35 million or less, you may register for the Cash Accounting VAT scheme. VAT under this scheme is calculated based on receipts and payments rather than invoice dates.
The VAT Flat Rate is designed for businesses whose taxable turnover is £150, 000 or less. Businesses who register for this scheme may pay VAT on a specified percentage of sales and this figure varies by industry, and you may equally include business expenditure for products in such category. Except for some capital assets costing more than £2,000, you cannot claim the VAT back on purchases.
6). Record Keeping for VAT-Registered Companies
Generally, you should maintain all information pertaining to your VAT return for at least six years, including business invoices and receipts. On the GOV.UK website, you can find thorough information on what you need to keep and for how long. When the Making Tax Digital for VAT regime went into effect in April 2019, some changes to the record-keeping obligations for VAT were imposed. For example, you must preserve at least some of your records in digital format to comply with the Making Tax Digital for VAT standards.
New businesses and entrepreneurs require VAT for a variety of reasons. It is important to know how to apply for a VAT number, as well as obtaining a VAT certificate. However, there is no one size fits all and you must find the most appropriate VAT scheme to register for. The VAT flat rate, cash accounting, and annual accounting schemes could be useful for your business depending on how you structure your sales and invoicing procedures. This article provides an overview of six things you need to know when applying for a VAT number and provides useful links to help you decide what scheme is most appropriate for you.
You should register for a VAT number if you sell to European customers or have business dealings in Europe where you are charged for goods or services. Find out how to register for VAT in European countries on the European Commission’s website.
Every three months, you should file a VAT Return to HM Revenue and Customs (HMRC). This period is referred to as your ‘accounting period.’ You are required to submit a VAT return even if you have no VAT charges to pay or reclaim from the accounting period.
VAT information is available on GOV.UK, including filing and payment deadlines, recovering VAT, VAT visits and inspections, partnerships, and using VAT online services. To help you understand VAT, HMRC has created webinars and e-learning tools, which you may find on GOV.UK.