Warning: The World of VAT is constantly changing, so if you are reading this blog any time after the day it was published then you should doublecheck that the rates, limits and rules are still correct!
VAT Registration limit: All businesses with turnover (or invoiced sales) of more than £85,000 per annum should be registered for VAT. If you expect your turnover will go over the VAT registration limit then you should register. The year to review is any rolling 12 months. It does not matter if your existing business has been trading for years, per the annual accounts, at £80,000. What matters is that if you add up any 12 month period will the turnover be less than the registration limit? There is currently a consultation taking place about whether to reduce this registration limit to a lower amount.
Voluntary registration: Some new businesses chose to immediately register for VAT. This could be a good idea if your customers are all likely to be VAT registered themselves as it will give the impression that your new start-up company has a turnover of over £85,000 and is therefore a “proper” business. Many limited companies do like trading with businesses that aren’t VAT registered. But if the general public are your customers then they would rather save the 20% VAT and buy from non-VAT registered businesses.
VAT invoices: once registered for VAT the business needs to make sure that certain information is on every VAT invoice, for example your VAT registration number. Businesses may not be able to reclaim VAT if the purchase bill is incorrect, therefore to protect themselves they may not pay your business until the VAT invoice is correctly drafted.
VAT Schemes: You need to also consider the many VAT schemes that are available. It is outside the scope of this short blog to discuss all these. Generally for service organisations the Flat Rate Scheme is no longer viable but all businesses with a turnover of less than £1.35 million should consider the Cash Accounting Scheme (or the Flat Rate Scheme equivalent). As the name implies VAT only then becomes due to HMRC when customers have paid (and input VAT can only be deducted once it has been paid out). This helps the smaller end of the SME sector with their cashflow.
Making Tax Digital or MTD. Currently from April 2019 HMRC are planning to make all VAT registered businesses with a turnover greater than the VAT registration limited to record all their transactions digitally and to file their VAT returns not via the Government Gateway but electronically via an accounting programme or online accounting app. There will be the possibility of using spreadsheets to record the transactions and then filing the VAT return via APIs, but when this blog is being published there has been no information about the APIs. This is just the starter of MTD and VAT – expect these requirements to start to cascade down to smaller entities.
Get in touch: to discuss VAT more fully with Aysgarth then please email us via the contact page and we will arrange to meet-up with you to discuss your new enterprise and VAT.