A common question amongst small business owners is whether or not they should register for VAT. Life Accountancy are in a position to assist you with that decision.
Am I legally obliged to register?
If your turnover (total sales) in the previous 12 months exceeds the compulsory registration threshold (currently £81,000), then yes – you must register. Failure to do so can result in fines. Life Accountancy can keep an eye on this for you and warn you if you approach the threshold. It is important to note that this is on a rolling 12 months basis (ie, the last 12 months from any given point), not based on turnover in a calendar year.
If you haven’t exceeded the threshold for compulsory registration you can still register voluntarily if it makes sense for you to do so.
How does VAT work?
If you’re a VAT registered business then you are essentially an unpaid tax collector. You have to add VAT at the appropriate rate to everything you sell (usually at 20%). This additional income isn’t yours – you’re collecting it on behalf of HMRC (HM Revenue & Customs). Every 3 months you need to pay over the VAT you’ve collected to HMRC.
However, when you buy items from another VAT registered business – they have to charge you VAT. But you can claim this back.
So, lets assume that in a 3 month period you collect £1,000 in VAT from your customers. In the same period you also buy something from a supplier and you’re charged £200 + VAT (Total: £235).
The amount you have to give to HMRC is the VAT you’ve collected (often called “Output VAT”) minus the VAT you’ve paid out (“Input VAT”) . So in this example you’ll be handing over £965 (1000 minus 35).
You’re essentially £35 better off than you would have been if you weren’t VAT registered.
Why else would I want to register?
Besides the possible financial gain, there is at least one other reason you might want to register for VAT and that is image.
By not being registered, you are telling the world that your company is turning over less than £77,000 a year. If you’re trying to present an image of being a big, established company then this would shatter that illusion to those in the know.
Life Accountancy can calculate and prepare VAT returns for as little as £175 per return. Why go anywhere else?