VAT Guide: Understanding VAT Registration and Filing

VAT plays a big part in the UK tax system. If you are a business owner, then understanding your VAT responsibilities, and the filing process is essential to staying tax compliant.

This blog post will explore VAT, providing you with the right business knowledge you need to guide you through the complexities of VAT registration and filing.

Contents:

• What is VAT?
• Why is VAT Important?
• VAT Responsibilities for Businesses
• Charging VAT
• Issuing VAT Invoices
• Keeping Records
• Filing VAT Returns
• VAT Registration – Who Needs to Register?
• Voluntary Registration
• How to Register for VAT
• VAT Schemes
• Filing VAT Returns
• VAT Deadlines
• Haggards Crowther Can Take Care of Your VAT

What is VAT?

VAT stands for Value Added Tax, and it includes the tax added to the value of goods and services at each stage of production or sale. This type of tax is unlike the other taxes, as VAT is collected regularly and paid by the consumer. Businesses charge VAT on their sales, which is the output tax, while input tax refers to the tax a business pays when it buys from other businesses, which they can reclaim back when they file their VAT tax returns.

The main thing to remember is that the consumer bears the cost of VAT when purchasing goods and services, and the business collects the VAT and has to send it to the government. This tax source is a key source of revenue for the government and an important part of tax compliance for businesses.

Why is VAT Important?

For governments, VAT is a significant source of revenue. For businesses, proper VAT management is critical to avoid legal issues and ensure smooth financial operations. Non-compliance can result in fines, penalties, and even legal action, making it essential for businesses to understand and adhere to VAT regulations.

VAT Responsibilities for Businesses

Businesses that are VAT registered must charge VAT on their sales, issue VAT invoices, keep accurate records, and regularly file VAT returns with HMRC. Read more in detail about the VAT responsibilities for businesses down below:

Charging VAT

Businesses that are registered for VAT must charge VAT on all taxable goods and services they provide. The standard VAT rate in the UK is 20%, but there are reduced rates of 5% and 0% for certain goods and services. It is important to determine the correct rate for your products to ensure compliance.

Issuing VAT Invoices

When a business sells goods or services to another business, it must issue a VAT invoice. This invoice should include specific details, such as the VAT number, the total amount of VAT charged, and the VAT rate applied. Correct invoicing is essential for both tax compliance and for those who need to reclaim VAT.

Keeping Records

Your business must keep detailed records of all sales and purchases, including VAT invoices, receipts, and any other relevant documents. These records must be kept for at least six years and should be readily available for inspection by HM Revenue and Customs (HMRC).

Filing VAT Returns

If you have a VAT-registered business, you must regularly file VAT returns, typically every quarter. These returns summarise the amount of VAT charged on sales and the amount reclaimed on purchases. The difference between these amounts must be paid to HMRC, or if the input tax exceeds the output tax, you can claim a refund.

VAT Registration – Who Needs to Register?

Businesses must register for VAT if their taxable turnover exceeds £85,000 (as of the 2023/24 tax year); this applies to the total value of taxable supplies in any 12 month period. Alternatively, they can choose to register voluntarily to reclaim VAT on their purchases.

Voluntary Registration

Even if your turnover is below the threshold, you can choose to register voluntarily. Voluntary registration can be beneficial, allowing you to reclaim VAT on purchases and potentially improving your business’s credibility.

How to Register for VAT

To register for VAT, businesses must apply online through the HMRC website. During the registration process, you will need to provide information about your business, including your turnover, business activities, and bank details. Once you have registered, HMRC will issue a VAT registration number, which must be included on all VAT invoices. If this seems like a lot of work, an expert accountant can assist you with this along with any other tasks involved with VAT and compliance.

VAT Schemes

There are lots of VAT schemes available that can simplify the VAT process for your business:

• Flat Rate Scheme: This is designed for small businesses, and it is made to simplify VAT reporting by allowing businesses to pay a fixed percentage of their taxable turnover as VAT, instead of tracking VAT on every transaction.
• Cash Accounting Scheme: Under this scheme, you only account for VAT when your business receives payments from customers and makes payments to suppliers, improving cash flow.
• Annual Accounting Scheme: This scheme allows your business to make advance payments towards its VAT bill throughout the year and submit one annual VAT return, simplifying the whole filing process.

Filing VAT Returns

Filing VAT returns is an important task for VAT-registered businesses, involving the common submission of detailed financial information to HMRC. Accurate and timely VAT returns ensure compliance and help avoid penalties and interest charges.

VAT returns are typically filed quarterly, though you can opt for a monthly or annual filing. HMRC will provide you with a VAT return schedule once you register. VAT returns must be filed online through the HMRC website. The process goes like this:

• Calculating Output Tax: Determine the total VAT charged on your sales.
• Calculating Input Tax: Determine the total VAT paid on your purchases.
• Completing the VAT Return: Enter the relevant figures into the online VAT return form. This includes total sales, total purchases, output tax, input tax, and the net VAT amount payable or reclaimable.
• Submitting the Return: Once the form is completed, submit it to HMRC. You must also pay any VAT due by the deadline.

VAT Deadlines

The deadline for submitting your VAT return and paying any VAT due is one calendar month and seven days after the end of the VAT accounting period. For example, if your VAT accounting period ends on March 31st, the deadline for filing and payment would be May 7th.

Haggards Crowther Can Take Care of Your VAT

Understanding VAT registration and filing is necessary for your business to ensure compliance and avoid costly penalties. You should familiarise yourself with VAT responsibilities, registration and the filing process.

You do not have to face the challenges of VAT alone, with the help of expert accountants such as us at Haggards Crowther. Our dedicated business team has all the knowledge and experience to help your business with VAT tax registration and the filing process.

As chartered tax advisors and accountants, we can guide your business to success. Contact us today to discuss how we can help you. All of our contact details can be found on our website, where you will also find more information about what we do.

Hamid Mahmood ACMA CGMA

Hamid has a wealth of experience advising owner-managed businesses across a wide range of issues, including the sale of businesses, value generation for shareholders, and formulating and advising on tax-efficient strategies. He’s also a specialist at helping start-up companies reach their full potential through teamwork, strategic thinking, and leadership.

His expertise spans technology, cryptocurrency, property investment, and various service-based industries, offering clients tailored solutions to navigate their unique challenges effectively.