Neil Debenham

As a small business, it’s important that you register for value-added tax (VAT) if your turnover exceeds a certain threshold. Right now, the VAT taxable turnover threshold is £85,000 a year and is applied to sales of goods and services that are not VAT exempt.

Below, Business Adviser and Corporate Consultant Neil Debenham shares more information on when you should register your business for VAT, the basics of the registration process, understanding how much of your turnover is VAT taxable and more.

When should you register your business for VAT?

In the UK, small businesses are legally required to register for VAT as soon as their VAT taxable turnover exceeds the £85,000 threshold.

Legally, you need to register for VAT if your business has a total VAT taxable turnover above the £85,000 threshold in the last 12 months. You are also required to register if you expect that your VAT taxable turnover will exceed £85,000 within the next 30 days.

Although you’ll need to register for VAT if you exceed the £85,000 threshold, you can also opt to voluntarily register even if your business does not generate £85,000 in VAT-eligible turnover per year.

What is VAT taxable turnover?

VAT taxable turnover is the total value of all goods and services sold by your business that are not exempt from VAT.

Currently, goods and services exempt from VAT include insurance, health services provided by doctors and postage stamps and services. If your business only sells these goods or services, you aren’t required to register for VAT.

However, you’re still required to register for VAT if your business purchases goods for £85,000 or more from EU VAT-registered suppliers.

If you sell a mix of VAT exempt goods and services and goods and services that are subject to VAT, you’ll need to record the VAT exempt transactions in your accounts. However, you are not legally required to charge VAT on these transactions.

Some goods and services are considered outside the scope of the VAT system. You don’t need to charge VAT on these goods. Currently, the following goods and services are considered “out of scope” for VAT:

  • Goods sold as part of a hobby, such as stamp collecting
  • Charitable donations that were not given in exchange for a product or service
  • Statutory fees, such as the London congestion charge
  • Goods or services purchased or used outside of the European Union

To verify if you need to register for VAT, you’ll need to add together the total amount of all goods and services you’ve sold over the past 12 month period, then exclude any transactions that are exempt from VAT.

You’ll also need to include business goods used for personal reasons, goods that were bartered or part-exchanged, goods given as gifts, building work performed by your business with a value of £100,000 or more and services from business in other countries that were reverse charged.

You’ll also need to include any items that are charged VAT at a zero rate, such as newspapers and books, some children’s items and goods exported to non-EU countries.

Benefits of registering for VAT

As well as legal compliance, there are several benefits to registering for VAT. The first of these is that your business can VAT when it’s charged for goods and services. If your business has a significant annual spend on goods and services, this could be larger than your VAT output.

Registering early can also simplify operations of your business by allowing you to focus solely on growth by getting your VAT registration out of the way early.

Registering for VAT is a simple process. Most businesses can register for VAT online using the UK government website. It’s also possible to register by post or appoint an agent or accountant to submit your VAT return on your behalf.

Closing thoughts

Although collecting and paying VAT can be an annoyance, it’s an essential part of operating a business in the UK. If your business exceeds the £85,000 threshold, it’s important that you’re registered for VAT and able to meet your financial obligations, explains Neil Debenham.

If you’re not sure about the best way to collect and pay VAT, consider talking to a tax agent or accountant. They’ll be able to provide additional information on how VAT works and the most effective options for your business.

Neil Debenham

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