It’s important to keep an eye on your turnover to make sure that you haven’t exceeded the VAT threshold. You can also make the decision to register voluntarily for VAT, this may come in handy if you pay out on a lot of VATable expenses or you’re getting close to the VAT threshold. 

When should I register for VAT?

The VAT threshold is currently £85,000 of VATable turnover, this does not include any exempt income such as international sales or grants. If you have either exceeded the threshold, or you’re close to it now’s the time to register. This means that if over the past 12 months you have turned over £85,000, or you believe that within the next 30 days you will hit the threshold, you need to report this to HMRC. Your VAT registration date will be the date you realise that you were no longer VAT exempt, not the date your turnover exceeds the threshold.

For instance, on 1st May you find out that your VATable turnover will exceed the threshold by the end of the month. You must register for VAT by 30th May and your registration date would be 1st May.

As soon as you exceed the VAT threshold you must register for VAT within 30 days from the end of the month which you first exceeded the threshold. Your registration date would then be the first day of the month after you exceeded the threshold.

Here’s an example; between 10th May 2019 and 9th May 2020 your taxable turnover was £86,000 and it’s the first time that your business has exceeded the threshold, you must register by 30th June 2020. Your effective registration date would be 1st July 2020.

If you fail to follow these guidelines you will receive fines and penalty charges so it’s important that you’re in the know when it comes to your business finances. If you delay registering you will have to pay what is owed from the day you exceeded the threshold. You will then be fined and the amount will depend on how late your submission was and how much you owe.

Registering voluntarily

You may ask, why would I register voluntarily for VAT? Registering voluntarily for VAT can have its advantages, but you must pay HMRC any VAT you owe from the date you register.

Once your business is VAT registered it allows you to charge VAT on goods or services which you sell. This also means that you can claim VAT back against goods and services which you purchase through your business.

Another benefit of registering before you need to, is if you are close to the VAT threshold and you don’t realise you have gone over it, you will avoid any penalty charges.

It’s also a good reflection of your reputation being VAT registered. Other business owners will know what the VAT threshold is and when they see that you are VAT registered they will be impressed with the amount of money you are making (even if you’re actually not!). Displaying your VAT registration number on your website will prove how successful your business is and that it’s a legitimate and reputable company.

As long as you keep records you can claim back the VAT you paid when you started your business, providing the goods are still being used. 

Even when you’re voluntarily registered for VAT, it’s important to mention that you must adhere to the same rules and regulations as those who have to register.

Purchases made before your registered

Did you know you can backdate your claim for VAT on purchases you made before the date you registered? There is a limit, however. If you still have goods which you have purchased to use within your business or in order to make other goods which you sell on, you can go as far back as 4 years. The purchase of services has a considerably shorter timescale of only 6 months prior to the day you registered for VAT.

You can only claim the VAT back on purchase for the business you have registered for VAT and the goods or services must relate to your business purpose. You must make the claim on your first VAT return and keep records such as invoices and receipts along with a description and purchase dates and be able to explain how they relate to your business.

MTD

Registering for VAT means that you will also need to comply with the rules of Making Tax Digital. You can read our previous blog about it here

If you are considering registering for VAT voluntarily or are about to hit the threshold in the near future then please get in touch to discuss your options.