Vat registration how does it work

Getting your certificate You should get a VAT registration certificate within 30 working days, though it can take longer. Print entire guide. Brexit Check what you need to do. Is this page useful? Maybe Yes this page is useful No this page is not useful. Thank you for your feedback. Can I register for VAT even if my turnover is below the threshold? When do I start charging for VAT? What are the benefits of being VAT registered?

Here are some of the benefits of being VAT registered: Being VAT registered means you can reclaim the input tax you have been charged when buying goods for your company.

There are some goods and expenses which you will incur where you have not been charged VAT. There is no VAT on insurance, finance, credit, education, training and fundraising events, the majority of other goods you will be charged VAT. Being VAT registered adds more credibility to your business, making it appear larger than it is, as well as creating a more professional image. Some companies only deal with VAT registered suppliers, so this will give you more opportunities to deal with more suppliers.

Again it creates a more professional image and the customer may then be more inclined to use you again in the near future knowing you are both VAT registered and that they can possibly reclaim their input tax also. What is a VAT return? All input tax — this is the VAT which you have been charged by suppliers on goods or expenses your business has incurred during the relevant quarter. Again — whether or not you have paid for the goods or expenses — you must add this to your VAT return form in that quarter.

For example — if you were completing a VAT return form for the first quarter ending March: Date invoice raised Date invoice paid Date to file and pay your VAT 11th March 12th June March first quarter You must include the invoice in the quarter the invoice was raised, not the month the payment was received. What is the Cash Accounting Scheme? Here is an example if you were completing a VAT return form for the first quarter ending March: Date invoice raised Date invoice paid Date to file and pay your VAT 11th March 12th June June Second quarter Even though the invoice was supplied in March, and technically is in the first quarter cut off, the payment was not received until June, meaning you would not claim back VAT on this invoice until the second quarter.

Disadvantages of using the Cash Accounting Scheme You will not be able to reclaim VAT on any goods purchased until you have actually paid for them. Call us on:. First and foremost, you must be aware of the right VAT rate for your goods and services, so that you can charge it correctly and reclaim any VAT on purchases made by your company.

There are currently three rates of VAT. The rate that applies to your business will depend on the goods or services you provide. You will add this VAT to the price of your products and services when you sell them to customers, whether they are business or non-business customers. Anything deemed a luxury item falls in this category too, which is why food products such as ice cream and confectionery use the standard rate. A reduced rate VAT applies to specific products. Although the rate does not add any charge to the products, companies must still record transactions involving these goods and services and report them on their VAT return.

If you trade exclusively in zero-rated goods or services, you may be exempt from VAT registration. However, you will need to apply for an exemption directly to HMRC. No VAT is charged on exempt supplies, which covers services in sectors such as medicine, dentistry, education, finance and insurance. Other exempt items include postage stamps and property transactions.

While the zero rate, while nominal, still applies and therefore requires records, exempt items do not need to be accounted for in your taxable turnover. You will also be unable to reclaim any VAT on business expenses. While food and drink items are usually zero-rated, there are some types of product which are always standard-rated, including catering, confectionery, crisps and savoury snacks and ice cream.

This throws up a bit of a dilemma for some food companies. Take Jaffa Cake, for example. In , Jaffa Cake became the subject of a VAT-related controversy, claiming that their chocolate-covered biscuits were, in fact, cakes. While cakes and plain biscuits are zero-rated items, a chocolate-covered biscuit falls under the category of confectionary, thus becoming standard-rated.

However, HMRC challenged this classification in The case attracted widespread media attention and ended up in a VAT tribunal, where the jury was posed the crucial question: cake or biscuit?

Be sure to follow these steps when charging output VAT to your customers:. There are three types of VAT invoices. HMRC stipulates different requirements for each kind of invoice, which you can find below.

It must include all the information listed above as well as the total amount, including VAT. Simplified invoices must only show:. You must use an entirely unique number for every single invoice you issue. The number should be sequential — you may use a different sequence per customer, so long as the series of invoices is unique.

Some companies choose to use customer prefixes on the invoices. If you decide to use customer prefixes, ensure that each customer has a unique prefix. If you are invoicing for transactions in foreign currencies, you must show the total payable VAT in pounds sterling on your invoice. For any invoices written in a foreign language, you must retain an English translation of the invoice. HMRC may request an English translation, and you must be able to provide one within 30 days.

If you want to use an accounting method for foreign invoices which is not listed above, you will need to contact HMRC for permission. As a business, you are generally able to claim back the VAT you have paid on purchases of goods and services for your business. This is known as a VAT refund.

If you have purchased items which also serve a private use, you may only claim part of the VAT back. This excludes things like business entertaining — many companies will take clients out for lunch, for example, which comes under this category.

The VAT you pay on a restaurant meal for a client would not come under reclaimable input tax. There are other instances where you may not be able to reclaim VAT, such as for:. This serves as proof of the purchase and shows that you have paid your input VAT on that transaction. Without a valid VAT receipt, you cannot claim any tax back. Many suppliers provide VAT receipts which are invalid, missing crucial information. Delivery notes, email confirmations or letters do not qualify as valid VAT receipts.

VAT invoices and receipts serve as your proof for your input and output tax figures. These invoices and receipts can be stored in an electronic format. Reclaiming your VAT is straightforward. If you are owed money from HMRC, this amount is shown. Then, provide your account details on your VAT online account. If HMRC owes you any money in tax, you will receive your VAT refund usually within 30 days of submitting your return if HMRC does not have your bank details, they may send you a cheque, known as a payable order.

If in doubt, it is worth seeking the advice of an accountant before claiming, to save you from any surprises from the tax inspector. This interest is claimable on the duration of time you have been unable to use the money.

Claims must be by made in writing, addressed to the VAT Written Enquiries team , who will consider each case. If your business has a nominated contact in HMRC, then you should direct the claim to them.

If your company is VAT-registered and its annual turnover drops significantly, you may deregister your company. VAT exemption can apply to organisations as well as goods and services. Some businesses cannot register for VAT. Businesses may sell a mixture of goods and services, some of which are taxable and some of which are VAT-exempt.

In this case, the company is partially exempt from VAT. Partially exempt businesses may reclaim the VAT they have paid only on purchases involved in producing or acquiring the VAT-rated goods. If this applies to your business, you must first and foremost keep a separate record of exempt sales, as well as detailed records of how you have calculated how much VAT to reclaim.

The crucial takeaway is that partially exempt businesses must only apply output VAT to their taxable supplies and apply none to their exempt supplies. Generally, you cannot reclaim exempt input tax. That said, if the amount of exempt input tax is relatively low, you may be able to recover it.

You can, however currently recover input tax that relates to any of the following:. You cannot usually recover exempt input tax, which refers to the following:. The problem arises when a business incurs input tax on purchases relating to both the taxable and exempt supplies.

In these cases, you can only recover the input tax for the portion used to make taxable supplies. Calculating this portion involves a multistep process. First of all, the business needs to use a process of direct attribution.

This process shows how much of your input tax is directly attributable to your taxable supplies and exempt supplies, and therefore allows a business to separate the ambiguous VAT. The first figure cannot be recovered. The second figure, however, can be fully recovered. This is the figure we are interested in when using the method below. Working out how much of your residual input tax is attributable to taxable supplies can be challenging. I put together this overview to help you understand the rules of VAT, how it works across different industries and answer some FAQs that will hopefully stop some of those nagging thoughts.

So when you go shopping and get a receipt you will most likely see a line for VAT. They do this to allow registered businesses to claim back all the VAT they pay, but require them to charge VAT on everything they sell.

A VAT registration is a separate registration to self-employment. Only VAT registered businesses have the ability can claim back any VAT they have paid because they have access to relevant forms. Usually, one VAT return is 3 months quarterly but there are exceptions for example if a business joins the annual accounting scheme.

The VAT rules are the same for businesses regardless of their business structure. Find out how to apply for a VAT exemption in this guide. Businesses that supply both taxable and exempt supplies can apply for a partial VAT exemption meaning they can claim back a portion of VAT on certain expenses.

You need to stay aware of the VAT registration thresholds , constantly monitoring whether you have crossed the limits both looking back 12 months and looking forward 30 days. There are many businesses out there choosing to do this because it does bring advantages means they can reclaim VAT that they pay and they hide their turnover despite the extra administration.

But there are some disadvantages of a voluntary VAT registration , so you should think carefully before you choose to do it. The easiest way to register for VAT is to go online and apply on the. GOV website. The main pro of the standard scheme is that you can claim back VAT on the things you buy when you are invoiced for them rather than when you have paid for them which is useful if you take credit from your suppliers.

But the drawback is that you have to pay VAT over on all your sales invoices regardless of whether your customers have paid you, which if you have slow payers, can cause you a cash flow problem. HMRC has launched many different VAT schemes and, although it can make things confusing when it comes to choosing the right one for you, they are designed to help with cash flow and reducing administration.