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September 11th 2013 / BY: Wisteria

VAT Limits and VAT Registration

Many small businesses are unsure as to whether they must register for VAT, but the rules are relatively easy to understand.

The term VAT is short for Value Added Tax and is charged on most goods and services that are sold by UK businesses. This can also include goods and services that are imported into the UK from EU countries. In the UK, there are currently three different rates of VAT: Standard (20%), Reduced (5%) and Zero (0%). The type of good or service will determine the rate of VAT that applies. In the majority of cases, the VAT rate is the standard 20% VAT rate. There is an additional classification which is that certain goods are “exempt”. The difference between this and zero VAT goods is that exempt goods are not counted as taxable supplies whereas zero rated goods are classified as taxable supplies, even though no VAT is charged on them.

If your taxable supplies over the previous 12 months (or less) have exceeded £79,000 then it is a legal requirement that your business becomes VAT registered and you will only have 30 days at that point to become VAT registered. If you believe your taxable supplies will exceed £79,000 in the next 30 days alone, you will also have to apply for VAT immediately.

Whilst these are the compulsory VAT limits for registration, if you are in business in the UK it is possible to register for VAT on a voluntary basis, even if you do not reach the VAT registration limits. The benefits of doing so tend to be either for image purposes, in order to recover input VAT, or potentially to gain a cash benefit using the Flat Rate Scheme.

If you are registered for VAT, you will need to charge the correct VAT rate on goods and services that you sell. This VAT does need to be paid to HM Revenue & Customs (HMRC) on a quarterly basis via your VAT return.

Being VAT Registered will often enable your business to reclaim any VAT on the business expenses you incur on your inputs. Although you will be obligated to also charge VAT on any goods and services that you provide to consumers, you will be able to offset the VAT expenditure from your inputs against the VAT on your supplies.

If you think you should be VAT registered or would like help registering, then please feel free to contact our tax department who will be more than happy to help you with your VAT Registration.