VAT legislation is complex, therefore it is important to identify VAT planning opportunities and ensure that all VAT compliance matters are dealt with. It is important to consider VAT even for small or start up businesses as voluntary registration may be beneficial or there may be a VAT accounting scheme that would ease the burden of VAT registration.
Should I be registered for VAT?
Value Added Tax (VAT) is a tax charged on the sale of most goods and services supplied by a VAT registered individual. VAT is charged at either 0% on for example books, newspapers, and construction of new homes. Reduced rate of 5% charged on domestic fuel and power and the standard rate currently 20% which applies to everything that isn’t zero, reduced rate or exempt. Exempt sales are for example, sales of some land and property, insurance and some postal services.
If your sales exceed the VAT threshold (currently £73,000) in the previous 12 months or are expected to in the next 30 days. There is also an option to register for VAT even if your sales have not reached the current threshold allowing you to claim back VAT on purchases which can be beneficial if:
- You make zero rated supplies – because your customers will not have to pay VAT
- Your customers are themselves VAT registered – because they may be able to claim back VAT you charge them
There are various schemes which can make it easier for a VAT registered business. It is important to speak to an accountant or business advisor to see if there is a scheme that will benefit you.
The Annual Accounting Scheme will allow you to do an annual VAT return reducing the burden of monthly or quarterly return deadlines.
The Cash Accounting Scheme will allow you to account for the VAT based on the invoices you have received payment for on sales and have made payment for on purchases. This allows you not to have to pay over the VAT on sales where you have not received the cash, improving cash flow and giving instant bad debt relief.