Are you unsure about how to manage the VAT status of your business? Are you uncertain about how to apply VAT to your sales? Does the process of reclaiming VAT from suppliers result in endless confusion? If so, you’re not alone. VAT issues are often one of the major problem areas for many businesses. With so many different variants and rules, managing your VAT can become a time-consuming task.
At RS Accountancy, we take the headache out of your VAT processes. Our VAT specialists have the sector expertise that can simplify your processes and guide you on the best methods for handling your VAT. Contact us today for free VAT advice in the UK.
Do I need to register? Becoming VAT registered in the UK
Do I even need to go through VAT registration? Do the same rules apply to me, as a self-employed individual, as they would for limited companies? These are common questions we’re often asked. So, let’s break down VAT registration and how it works for your business.
The good news is that the rules for VAT registration are the same for self-employed individuals as they are for limited companies. Whether you’re self-employed or part of a company, the basic rule is if your sales exceed £82,000 in 12 months, then you need to register for VAT. Don’t delay — if you know that your business will surpass the £82,000 limit, you must register for VAT straight away.
Some smaller companies also choose to register for VAT in order to give the impression that their company is bigger than it is in reality. If you are looking to boost the appearance of the size of your company, and your sales don’t exceed the £82,000 mark, you can still register for VAT.
The registration process
The registration process can be confusing and complicated. The kind of registration and the particular requirements differ between businesses. For free detailed advice on how your business should register for VAT, contact one of our VAT specialists, and we will help you through the process.
What does VAT look like?
Once you are VAT registered, you need to start including a charge for VAT on your sales invoices. This means that you add 20% on top of your normal fee or price.
Below is an example of what an invoice with VAT would look like if you were charging a customer £1,000:
The customer would then pay £1,200.
It is integral that you get VAT receipts for all your business expenditure so that you can claim the VAT back.
Going VAT registered: 4 ways to account for VAT
Establishing whether or not to register for VAT is only the first step. Things become a lot more complicated when you’re faced with four different options for accounting your VAT. We have broken down four different roots that you can take with your business:
- Vat on Invoice: In this option, you declare all of the VAT on your invoices in the quarter, as well as the VAT on your purchase invoices and expenses to HMRC. This is the most common way of accounting for VAT. However, you may end up paying VAT to HMRC on invoices that haven’t yet been paid.
- Vat on Cash: In this option, you declare all of the VAT on your sales receipts in the quarter to HMRC. However, with this method, you minus all of the VAT on your purchase invoices and expenses. The benefit of this method is that you’re only ever paying VAT to HMRC on what you have received from your customer. The downside? Bookkeeping can become more complicated with this method.
- VAT on invoices using the flat rate scheme: The flat rate scheme is designed for businesses that have less than £150,000 turnover (sales). In this scheme, you will be assigned a flat rate percentage by the HMRC based on your type of business. You will then simply need to add up the gross amount of your invoices (the NET + the VAT) and then multiply this amount by the flat rate percentage. This may sound like the perfect solution for you, but a word of warning: with this method, you can still claim the VAT on ‘capital costs’ over £2,000, but it does not account for the VAT on the rest of your expenditure.