Q&A: Registering for VAT
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If you expect your annual turnover to reach £61,000, you need to prepare for VAT registration. What does the process involve and what happens then? Afsheen Latif finds out
Paul Taylor (PT), consultant at independent tax advice service VATease, explains how to register and whether there are any benefits to doing so early.
Do I have to register for VAT if I am approaching the threshold? PT: You don't have to register until you exceed the threshold (currently £61,000 annual turnover), or expect to exceed it in the next 30 days alone, though you may choose to do so. Are there any benefits to early registration? PT: There are. Firstly, you may be able to reclaim VAT paid on your purchases and overheads. Secondly, VAT registration can give the appearance of size and respectability to a small business. How do I go about registering? PT: Apply to HM Revenue & Customs (HMRC). Details of which office you should apply to can be found on their website (www.hmrc.gov.uk/). What records will I have to keep? PT: HMRC must be able to trace details of all transactions from your records to the VAT return and back. Depending upon your business, you will need to keep copies of all purchase invoices, sales invoices, till rolls and other relevant documents, such as import and export documents or a second-hand car stock book. You must retain all records for six years. What VAT rate will I have to charge? PT: Goods and services are subject to three rates of VAT. A zero rate applies to some food, books and newspapers, children's clothing and new houses. A reduced rate of five per cent applies to building work on houses, women's sanitary products, domestic fuels and energy saving materials. The vast majority of transactions are subject to VAT at the standard rate of 17.5 per cent. For a full list of products and services refer to the HMRC website. Will charging VAT have an adverse affect on my business? PT: If your customers are mainly private individuals or businesses that aren't able to recover VAT, then it could have a negative impact. You will either become more expensive or have to fund all or part of the VAT out of your profit. However, if your customers are mainly VAT-registered businesses then they should be able to recover the additional VAT charged. What about overseas customers? PT: If you sell to private individuals within the EU, you should still charge UK VAT. If you sell to individuals elsewhere beyond the UK, you generally don't need to charge VAT. The taxation of goods and services supplied to overseas businesses is a complex issue and I would recommend you consult an expert. How often do I need to fill in my returns? PT: Ordinarily, VAT returns must be completed every three months. This time frame can be changed to coincide with your financial year-end. If you regularly reclaim repayments from HMRC you can request monthly VAT returns. Small businesses may choose to reduce their administrative burden by submitting annual returns, although they will still be expected to make quarterly payments on account. What could happen to me if I don't register on time? PT: Any business that has not registered, either deliberately or by mistake, will be forced to register from the correct date and account for all unpaid VAT. Penalties of up to 15 per cent of the VAT due can be charged - more, if HMRC can prove a deliberate attempt to avoid paying large amounts.
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