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When & What to register for VAT

VAT is without doubt one of the most complex taxes that a business encounters; it is important to understand the basics and at what point to get expert support.

When to register for VAT?

1) When your total sales (taxable supplies) are greater than £85k in a 12-month period. This is a rolling period, not a financial year. At the end of each month, you should quickly review the last 12 months and see if you have gone over this £85k threshold. If you have, then you must register for VAT within 30 days of the end of that month.

2) Alternatively, if you know that your taxable supplies will be become greater than £85k in the next 30 days, then you must register for VAT by the end of that 30-day period.

VAT Schemes

The main VAT scheme is where you declare VAT on your outputs (sales) and claim VAT on your inputs (purchases). Each quarter you are required to submit a tax return declaring what you must pay on the outputs less the inputs. Your VAT return and payment must be made by the 7th day of the following month after your VAT quarter end. If your VAT quarter end is 30th June, then the return and payment will be due on 7th August. All VAT returns are now digital.

However, for smaller businesses there are two other VAT schemes, the Cash Scheme, and the Flat Rate Scheme.

Flat Rate Scheme

The flat rate scheme is open to businesses with turnover of less than £150k. Under this scheme you will pay a percentage, to HMRC, of your VAT inclusive sales. The percentage you pay is dependent on your service/product, the maximum (as at July 2023) is 16.5%. Therefore, if your sales were £20k for a quarter, including VAT, then you would pay £3,300 to HMRC being 16.5% of the £20k sales. You cannot claim any deductions for your purchases.

This is a simple scheme to run and is attractive to most start up businesses. However, each quarter return should be assessed to see if you are ‘saving’ on the standard scheme. If your mix of sales/purchases changes you could be better off in the standard scheme.

If you are in the flat rate scheme then you will need to move over to the standard scheme when your sales are greater than £235k in a 12-month period.

Cash Scheme

The cash scheme is like the standard scheme with the exception that you only pay VAT on sales that have been PAID and purchases that you have PAID. The advantage of this is that you are only ever paying over VAT once you have received or paid it from your business.

To be eligible for this scheme you must have turnover less than £1.35m and expect to do so for the next 12 months.

You cannot use the scheme alongside the Flat Rate Scheme, and you must leave the scheme when your taxable supplies are greater than £1.6m.

There are exceptions to what you can use the Cash Scheme for:

· where the payment terms of a VAT invoice are 6 months or more;

· where a VAT invoice is raised in advance;

· buying or selling using lease purchase, hire purchase, conditional sale, or credit sale;

· importing goods into Northern Ireland from the EU;

· moving goods outside a customs warehouse.

As you can see there are many options on schemes you can register into. If you are nearing the VAT threshold and would like a VAT review to go through the pros and cons of each scheme and which would work best for you then please get in touch, we can lead you safely through the complexities.

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