Value Added Tax or VAT refers to tax on goods sold or services offered. As a business owner, it is something you should pay attention to. The VAT rates depend on the goods and services supplied. Generally, there are four categories which include: exempt supplies, zero rates, reduced rates and standard rates. By and large, VAT registration may be voluntary and therefore, optional for your small business. However, once your taxable turnover exceeds £83,000 for the last 12 months or is expected to exceed this amount in the next 30days, then VAT registration is legally required.
Registering voluntarily has its advantages. Because VAT can help your cash flow, it is advantageous to register earlier than you are legally required to. On the down side, if your customers are small businesses that are not registered for VAT or are members of the public, this could make your prices seem higher. In any case, how do you go about registering for VAT either voluntarily or by legal obligation?
Getting Started
You need to provide certain information to register for VAT. These include details on all businesses linked to you within the past two years, details on acquired businesses where applicable, and details on your businesses bank accounts. In addition, it is important to have your national insurance and incorporation details available.
Registering for Vat
VAT registration can either be completed by filling out a paper form or filling out an online form.
Although an online registration is the option favoured by many because of convenience, if your business has an international reach or is connected to a group of businesses, then the online VAT registration option will not work. For this category, registration can only be done at the official HMRC website: www.hmrc.gov.uk. It can take up to 2weeks for HMRC to process your application after which you are sent your VAT registration number.
Alternatively, if you opt to fill out a hardcopy form, you will need to download it from the HMRC website. Between the online and the paper form options however, the HMRC doesn’t handle paper forms directly and as such, submission of all VAT payments and returns must be done online by all businesses filing for VAT registration, old and new businesses inclusive.
In order to get this done, you need to register for the VAT Online services with HMRC by completing your certificate of registration and getting it approved. This would require the postcode of your main address, effective date of VAT registration and VAT registration number. You also need to indicate the last period you submitted your last VAT return and the digits from the last VAT return submitted, where applicable.
Reclaiming Vat on Goods and Services Purchased before Vat Registration
It is possible to reclaim VAT on goods imported or bought for up to 4 years before you filed for VAT registration, if the requirements are fully met. It is important to take stock of the goods available to your business at the time of registration, in order to determine whether you meet some of these requirements. In order to reclaim goods that were purchased before VAT registration, you have to show that the purchases were made by you and that the goods now have VAT registration. You also have to prove that the goods were purchased for business purposes. Finally, you have to show that the goods are still in your possession or have been used in the manufacturing of other products in your possession.
For services, the purchases should have been made within six months of VAT registration and they must have been bought by the entity, and for business purposes that are VAT taxable.
In all, it is important that you record all transactions as business progresses. HMRC advices on proper record keeping even on seemingly little details such as usage of goods, expiration dates, among others.