I will start this, the eighth of our bite sized start up guides by saying VAT has to be one of the most complex areas of UK taxation and as such professional advice should be taken at all times, don’t try and ‘go it alone’.
There are two types of VAT registration – compulsory and voluntary.
Compulsory – once your turnover exceeds £61,000 (From 1 April 2006) you are required to register with HMR&C for the purposes of VAT. It should be noted that your turnover may exceed £61,000 within months or it may be over a rolling twelve month period. In these situations you need to inform HMR&C within 30 days at the end of the month in which the value of your turnover exceeds £61,000.
Another compulsory registration would be if you have bought a business which is a going concern that is already VAT registered.
Voluntary – in certain circumstances it is possible to register on a voluntary basis even though your turnover is less than £61,000. It should be pointed out that this is not suitable for everyone and professional advice should always be sought before registering on a voluntary basis.
Other voluntary registrations maybe if your turnover is zero-rated (no VAT is charged on sales) yet expenses you incur have VAT on them, again, take professional advice first.
How often do I have to do my VAT Return?
VAT Returns are generally completed every three months. However, you can now use the annual accounting scheme. With this scheme you pay monthly or quarterly installments towards an annual VAT bill and at the end of the year you submit a single annual return and any balance due. The annual accounting scheme is only available if your turnover is under £1,350,000.
How is my VAT accounted for?
The following methods are available to you and your business to account for VAT:
Invoice basis – under this method you declared VAT on sales and reclaim VAT on expenses based on the invoice dates, irrespective of when those invoices are paid.
Cash accounting – under this method you only pay the VAT over on your sales once you receive the money, and likewise with expenses, you can only reclaim the VAT once you have paid for items. This method has a limited, once your turnover exceeds £660,000.
Flat rate scheme – VAT is calculated as a flat percentage of your turnover. The percentages are decided according to the trade sector your business operates in.
Retail schemes – If you sell direct to the public you may not be able to issue a VAT invoice for each sale, in which case there are several retail schemes available that may help.
Can I do my VAT online?
You have the choice on how you return your VAT to HMR&C, you can either submit it on the traditional paper form or use the new online facility. The advantages with the online system is you are given longer to submit your return, an extra 7 days in fact, you also get those extra 7 days to pay your VAT.
There is more help available on VAT by visit the Value Added Tax section of the HMR&C website.
There is also a Frequently Asked Questions section.
Remember, the above is only a bite sized guide to give you a helping hand, take professional advice at all times.