Are you a sole trader in the UK wondering whether you should get Sole traders VAT registered?
You may feel overwhelmed by the prospect of registering for VAT or unsure how it could benefit your business.
In this blog post, we’ll explore why and how sole traders become VAT registered in the UK and what it means for your business.
Sole Traders’ VAT Registration: Why and How?
Sole Traders VAT: Why get registered?
VAT, or Value-Added Tax, is a tax that is added to the price of most goods and services.
As a business owner, you may charge VAT on the products or services you sell and then pay this VAT to HM Revenue & Customs (HMRC) after deducting any VAT you have spent on your business expenses.
The VAT threshold in the UK is currently £85,000 (as of 2023), which means that if your business turnover exceeds this amount in 12 months, you must register for VAT.
There are some benefits to becoming VAT registered as a sole trader, including:
Being VAT registered can make your business look more professional and established, which can help to build trust with customers and suppliers.
Claiming back VAT
If you’re VAT registered, you can claim back the VAT you’ve paid on your business expenses, and this can reduce your VAT liability and improve your cash flow.
If your competitors are VAT registered, not being registered may put you at a disadvantage. Registering for VAT can level the playing field and potentially increase your sales.
How to become VAT registered?
If you need to become VAT registered, the process is straightforward. Here are the steps you’ll need to take:
1. Check if you need to register
As mentioned, if your business turnover exceeds £85,000 in 12 months, you must register for VAT. If your turnover is below this threshold, registration is optional, but you may still choose to do so if it makes financial sense for your business.
2. Gather information
Before registering, you’ll need to gather information about your business, including your VAT taxable turnover, business bank account details, and business activity information.
3. Register online
You can register for VAT online through the HMRC website, and you must create a VAT online account and complete the online registration form.
In addition, you also need to provide your business details, including your trading name, address, and contact details.
4. Wait for confirmation
After you’ve submitted your registration, you’ll receive a confirmation from HMRC within a few weeks. Once you’ve received confirmation, you can start charging your goods and services VAT.
What are the obligations of being VAT registered?
Once you’re VAT registered, there are certain obligations you’ll need to fulfill:
As a VAT-registered business, you are required to charge VAT on the goods and services you sell. This VAT amount needs to be included on the invoices you issue to your customers.
It’s important to understand the VAT rules and regulations around when and how to charge VAT to ensure that you’re charging the correct amount.
Submit VAT returns
It’s mandatory for VAT-registered businesses to submit VAT returns to HMRC every quarter. These VAT returns provide details of your VAT sales and purchases during that period. You’ll need to pay any VAT due to HMRC by the deadline specified in the return.
Keep accurate records
For at least six years, it’s important to maintain accurate records of all your VAT transactions, including invoices, receipts, and any adjustments made to VAT. These records should be easily accessible and available for inspection by HMRC.
Comply with VAT rules
As a VAT-registered business, you must comply with the VAT rules and regulations set out by HMRC, including VAT rates and exemptions, and ensure you charge the correct amount of VAT on your goods and services.
In addition, it’s important to keep up-to-date with any changes to the VAT rules that may affect your business
Frequently Asked Questions
What if my business turnover is close to the VAT threshold?
Consider registering for VAT voluntarily if your business turnover is near the VAT threshold. This can help you avoid penalties for late registration and give time to adjust to the new requirements.
Although remember that once you register, you’ll need to start charging VAT on your sales and filing VAT returns, so factor in the extra time and effort required.
What happens if I don’t comply with VAT regulations?
It depends on the severity of your non-compliance. For late filing and payment, you may pay interest and penalties. For errors or omissions on your VAT returns or records, HMRC can investigate and potentially take legal action against you.
In severe cases like deliberate fraud or evasion, you could face criminal charges, fines, and even imprisonment.
How can I keep track of my VAT records and returns?
This task can be a headache, but plenty of tools and resources are available to help you.
Essentially, you need to maintain records of your sales and purchases to aid in calculating output and input VA. Tools like the VAT online account and third-party accounting software can ease all these.
However, you must choose reputable tools compatible with HMRC’s systems.
Becoming VAT registered as a sole trader can give your business credibility, tax benefits, and competitive advantage. If your business turnover exceeds the VAT threshold, you must register for VAT, and if it doesn’t, you may still opt to register if you think it is beneficial.
Check out Sterlinx Global for more professional advice on Sole Traders VAT.