VAT Registration
VAT seems to be a common word, heard by most people in business. What remains unknown is that the 3rd part of all revenues collected by the govt comes from VAT. The full form of VAT is Value added Tax introduced in the UK in 1973. VAT plays a significant role in every business, affecting all our regular purchases done online and on our high street but remains to be very less understood among all taxes. To the high street shopper, VAT becomes a part of the purchase, and they don’t even care about paying. Businesses, however, have a unique way of looking at it. VAT may not seem to be a profitable part of a business but a crucial one, failing to maintain and filing, can result in serious problems. There are three rates of VAT charged in the UK depending on the products or services.
Standard Rate : 20% – For most products or services.
Reduced Rate : 5% – For certain products or services like home energy, children’s automotive seats, residential property conversions, etc.
Zero rate : 0% – For children’s food and clothing.
Who needs VAT Registration
VAT registration is necessary if your taxable turnover exceeds £85,000. The entire turnover generated by sales that are not VAT exempt is called Taxable turnover. Turnover including products with a 0% VAT rate is also classed as taxable turnover. Unregistered companies must keep an eye on their turnover when it’s close to the registration limit. Once the turnover limit is over, you must submit for VAT registration. VAT applies to companies, partnerships, and sole traders.Companies below the threshold can go for voluntary VAT registration but don’t need to charge VAT on their sale of products or services. Voluntary VAT registration helps in reclaiming VAT on purchases to create a trustworthy image for your customers.
As discussed earlier, since VAT remains very less understood by all, among all taxes, our support team helps you in understanding the business and its complexities by guiding you through the complete process of :
VAT Registration,VAT returns submissions,Resolve errors or mistakes,Assessments,International transactions,Building your DIY knowledge
Calculate VAT
There is a very straightforward rule to calculate VAT. To find VAT-inclusive prices, multiply the price excl. VAT by 1.2 to get the standard 20% rate of VAT added to the price. The same goes for the 5% reduced rate of VAT, you need to multiply the price (excl. VAT) by 1.05.
Filing for VAT Return
After VAT registration, a company must report the amount of output and input tax to HMRC with VAT return filing process software online, usually completed every quarter. This is very important and mandatory for businesses with a turnover over £85,000 as per Making Tax Digital (MTD) for VAT was introduced in April 2019.
Penalties
VAT registration needs to be taken seriously as a legal obligation. Failing to register or missing to file it on time can lead to serious penalties. The penalty imposed by HMRC for late registration is calculated as a percentage of the VAT due (output tax less input tax) from the date a business should have registered to the date HMRC received your notification or became aware that you were required to register. The penalty rate is determined by how late you registered :
- Late not more than 9 months – 5% Penalty.
- Late more than 9 months but not more than 18 months – 10% Penalty.
- Late more than 18 months – 15%
Want to claim VAT
You may be able to reclaim VAT on goods and services that are used exclusively by your business. These goods include computers, office furniture, and transportation. You can also include third-party vendor costs (such as accountants). VAT cannot be reclaimed on goods and services purchased for personal use. You also cannot claim the VAT back on business entertainment expenses. Reclaiming VAT requires the submission of a quarterly VAT Return. Calculate the difference between the VAT your company paid and the VAT it charged during an accounting period.The procedure for reclaiming VAT is complicated, with numerous exceptions, exemptions, and drawbacks to consider.
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