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August 27th 2014 / BY: Wisteria

Do I need to register for VAT when I set up a company?

When you set up a company you may consider registering for VAT. This is a tax charged on VAT taxable goods and services that are sold by VAT-registered companies to both business and non-business customers in the UK. It can also be charged on goods and services imported from other EU countries. VAT registered companies generally add VAT to the sale price of most goods and services they provide. A benefit of registering for VAT when you set up a company is that you can generally reclaim the VAT you have paid on goods and services. You cannot charge or reclaim VAT if you’re not VAT-registered.

If you do choose to register for VAT when you set up a company you will have to complete a VAT return at regular intervals, usually on a quarterly basis. This return will show your output tax and your input tax. Output tax is the VAT you’ve charged on your sales to customers. On the other hand, input tax is the VAT you’ve paid on your purchases in the period. If your input tax in the period is greater than the output tax, you can claim the difference from HMRC. Similarly, if your output tax is greater than your input tax, you must pay the difference to HMRC.

The standard rate of VAT for most goods and services is 20% of the full sales price. However, a reduced rate of 5% or a zero rate of 0% can be charged on specified goods and services depending on the product itself and circumstances of the sale. Examples of zero-rate goods and services are newspapers and public transport. In addition, examples of reduced-rate items include domestic power and children’s car seats. There are also some goods and services that are exempt from having VAT charged on them. Some of these items include insurance and education.

You do not have to register for VAT when you first set up a company. However, HMRC do have requirements as to when a business must register for VAT. If you’re a company providing VAT taxable supplies then you’ll have to register for VAT when your turnover for the previous 12 months has gone over the VAT threshold, which is currently £81,000. In addition to this, you should also register for VAT if you think you’ll go over the threshold in the next 30 days.

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If you would like more information about VAT registration or the service that Wisteria could offer your business, then please contact us on info@wisteria.co.uk or call us on 020 8952 0140.