If your company’s VAT taxable revenue exceeds £85,000 per annum, you must register for VAT with HM Revenue and Customs (HMRC). When you register, you will receive a VAT registration certificate in the mail. This certificate substantiates:
- Your VAT registration number,
- When should you file your first VAT return and make your first payment?
- And your ‘effective date of registration,’ which is determined by the day you crossed the threshold, or by the date you asked to register if it was voluntary.
On the other hand, if your annual turnover is less than £85,000, you can register voluntarily unless everything you sell is excluded. If you register for VAT, you will be subject to certain obligations. You may be able to reclaim the VAT you paid on some purchases made before registering.
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Your VAT Obligations
From the day of your registration’s effective date, you must:
- Charge the appropriate amount of VAT,
- Pay any VAT amount owed to HMRC,
- Submit all VAT Returns,
- And maintain VAT data and a VAT profile.
While you are waiting
You will be unable to charge or show VAT on your invoices until you obtain your VAT number. However, you must still pay VAT to HMRC for this time period.
You should raise your prices to account for this, and explain why to your clients. Once you’ve obtained your VAT number, you can reissue the invoices with the VAT included.
The Most Effective Method for VAT Registration
Online Method
Most enterprises, including partnerships and groups of corporations filing under one VAT number, can register online.
This will allow you to apply for VAT and establish a VAT account online (also known as a ‘Government Gateway account’). This is obliged to allow you to disclose your VAT Returns to HM Revenue and Customs (HMRC).
Using a Representative
You can hire an accountant or consultant to file your VAT returns and correspond with HMRC on your behalf.
When you obtain your VAT number from HMRC, you can open a VAT account online. Then choose the ‘VAT submit returns’ option.
When You Are Unable to Register Online
You must use VAT1 to register by post if you:
- You want to apply for a ‘registration exception’
- You want to join the Agricultural Flat Rate Scheme
- You want to register divisions or business units of a body corporate under separate VAT numbers
Forms to register by mail:
- VAT1A – if you are an EU company that is ‘distance selling’ to Northern Ireland
- VAT1B – if you import or ‘acquire’ items from an EU country worth over £85,000 into Northern Ireland
- VAT1C – if you are disposing of assets for which refunds under the 8th or 13th Directive have been claimed.
When you obtain your VAT number from HMRC, you can open a VAT online account. Again, choose the ‘VAT submit returns’ option.
Obtaining Your Certification
A VAT registration certificate should arrive within 30 working days, but it may take longer in some cases.
It is sent in one of the following ways:
- If you register online, it will be sent to your online account.
- If an agent registers you or if you are unable to register online, it will be sent via post.
What You Should Know
You must give information such as your turnover, company activity, and bank account information.
The day you registered is referred to as your “effective date of registration.” You must pay HMRC any VAT owed as of this date.
There is no need to authorize an agent to register for VAT on your behalf.
When You Should Register Your Business for VAT
VAT registration is required in the United Kingdom for all sorts of enterprises, including limited corporations and sole proprietorships if any of the following conditions are met:
- Within a 12-month period, VAT-taxable turnover exceeds £85,000 (2021/22 registration level).
- The company’s VAT-taxable revenue is expected to surpass £85,000 within the next 30 days if it purchases more than £85,000 in items from EU VAT-registered suppliers.
- The company is located outside of the United Kingdom yet provides goods or services to the country.
If your company is established in the EU and you sell goods from another EU member state to non-VAT registered consumers in the UK or the Isle of Man, you must register for VAT when:
- The value of these distance sales exceeds £70,000 in a calendar year, or if you distance sell excise items (such as alcohol and tobacco) into the UK of any value.
- The value of these distance sales exceeds £70,000 in a calendar year, or if you distance sell excise items (such as alcohol and tobacco) into the UK of any value.
Customers who are not VAT registered include:
- Individuals,
- Few small businesses,
- Businesses who are unable to pay vat because their operations are carried out by exempt public bodies,
- And charitable organizations
Also, there is no threshold if you or your company are not based in the United Kingdom. You must register as soon as you begin supplying products and services to the United Kingdom (or if you expect to in the next 30 days).
Registration After the Deadline
If you register late, you must pay the difference between when you should have registered and when you really did. You may be penalized based on how much you are due and how late you register.
Registration on One’s Own Request
If your company’s annual revenue is less than £85,000, you can register voluntarily. You must pay any VAT owed to HMRC as of the date they register you.
Making an Exception
You can always request a registration ‘exception’ if your taxable turnover temporarily exceeds the threshold.
Send the documentation to HMRC demonstrating why you anticipate your VAT taxable turnover to not exceed the deregistration threshold of £83,000 in the following 12 months.
HMRC will evaluate your request for an exception and will notify you in writing if you are granted one. If you do not, they will register you for VAT.
Upsides and Downsides of VAT Registration
The Benefits of VAT Registration
- VAT might be levied on the items and services you sell. This is referred to as an ‘output tax.’
- VAT paid on goods and services purchased from other firms can be reclaimed. This is referred to as an ‘input tax.’
- Your company will be entitled to VAT refunds if you sell zero-rated and standard-rated products or services.
- VAT registration on your own initiative can make your firm appear larger and more established. This can provide you with a competitive advantage, particularly if you are interacting with other VAT-registered firms and clients.
- Displaying your VAT number on stationery and websites may entice larger companies to do business with you. Many large corporations, particularly those in the financial industry, refuse to do business with non-VAT registered companies.
- VAT invoices can be generated for your clients/customers.
- When you register for VAT, you can submit claims for genuine product purchases for up to 4 years and for services for up to 6 months before registration. If you register for Voluntary VAT registration, you will be able to backdate your registration and reclaim VAT on valid business transactions for up to 4 years (for goods) or 6 months (for services).
The Disadvantages of VAT Registration
- Potential and existing consumers who are not VAT-registered are unable to reclaim the VAT, so they may be put off with items and services that are charged with VAT.
- If your output tax exceeds your input tax, you must pay the difference to HMRC.
- VAT registration entails more administration and paperwork. You must keep proper VAT accounting records and file quarterly VAT returns with HMRC.
To decide if voluntary VAT registration is correct for your company, consider the pros and cons with respect to the goods and services you buy and sell. Also consider who and where your customers are, and the industry you work in. Most of the time, the potential benefits outweigh the extra work, but it’s always a good idea to consult with an accountant for expert, individualized advice before making any decisions.
Want to terminate your VAT registration?
If your company is no longer eligible to be enrolled for VAT, you must revoke your registration. For example, if you cease to trade, stop manufacturing VAT-taxable supplies, or enter a VAT group. You can also terminate your VAT registration at any moment if your VAT-taxable revenue falls below £83,000 (the de-registration level for 2021/22), or if you no longer want to remain with voluntary registration for whatever reason.
To cancel your VAT registration, you should inform HMRC online or by writing (using form VAT7) within 4 weeks of the date your firm ceases to be eligible. You must mention the cause for de-registration as well as the date your VAT registration must be terminated. To this date, your business must keep charging and accounting for VAT.
HMRC will contact you within 3 weeks of submitting your application to confirm the formal date of de-registration. You will subsequently be needed to submit a final VAT return. You must also retain all VAT records for 6 years from the date of de-registration.
All in all, VAT registration can have both negative and positive outcomes depending on your business model. If you are mostly dealing with small businesses and non-VAT registered individuals, VAT will be a disadvantage. But, if you work with big corporations and VAT registered businesses, VAT numbers will make your business seem more reputable and established. However, if you are earning £85k per year, you won’t be able to choose if you want to register for VAT because then it will be a must to register for VAT.
Contact us if you need some advice regarding VAT registration. We are happy to assist.