Written by: Jodie Verity

Your VAT Questions Answered

If you run a business, it is highly likely you will be eligible for VAT. In this blog, we answer all your questions regarding VAT.

VAT Registration Requirements

Requirement to register

A business is eligible for VAT payments if its taxable turnover exceeds £90,000 over the preceding 12 months period. However, a business must also file a VAT registration if they anticipate the business will achieve a turnover exceeding the threshold in the next 30 days alone. – Get in touch for more details regarding what constitutes taxable turnover.

If turnover is in excess of £90,000 over the last 12 months, the business owner has 30 days from the end of the month when turnover exceeded threshold to register. The effective registration date would be the first day of the second month after you go over threshold.

Voluntary VAT Registration

A business owner may wish to register for VAT even if there is no legal obligation. This is because customers may see the business reputable. After registering, the business must collect VAT from customers and subsequently pay this over to HMRC. However, VAT can be claimed back on business purchases on which it is applied.

Pre-reg expenses

Once the business is VAT registered, it has the opportunity to claim back on some expenses incurred prior to registration. This particularly applies to any VATable costs for business services in the 6 months prior to registration such as telephone, professional/accountancy fees etc, as well as VAT paid on goods still belonging to the business – Fixed assets/Stock. It is important to note these expenses can be claimed back within 4 years of the registration date!

Flat Rate Scheme

Rather than using the standard VAT scheme and declaring VAT on sales at 20%, some VAT registered businesses may wish to explore the use of the flat rate scheme.

The use of the Flat Rate Scheme can be requested upon registration, it is aimed at business that incur very little VAT costs are those who would benefit the most from the flat scheme. Within this scheme, businesses still charge VAT to customers at the standard 20%, however, it will declare and pay a flat rate percentage of gross sales over to HMRC (usually a lot lower than 20%).

Get in touch for more details on the specific rates.  Iti is worth noting that when a business is part of the flat rate scheme, they can only claim VAT back on are certain capital assets with a value >£2,000. No other purchase VAT can be reclaimed. It is therefore, not designed for businesses that have high running costs.

It is also worth bear in mind that if HMRC consider the business to be a limited cost trader, the flat rate percentage is set at 16.5% which means there is hardly any benefit to using the scheme. According to HMRC, a Limited Cost Trader is a business whose goods cost less than either 2% of turnover or £1,000 a year.

A business is only eligible for the flat rate scheme if the taxable turnover will not exceed £150,000 in the next 12 months and must leave the scheme if turnover exceeds £230,000 – Get in touch for further specifics on this.

What can be claimed

Businesses can claim VAT on any expenses that incur it, so long as they are wholly and exclusively for business use/business related. Therefore, this excludes anything bought for personal use.

Submitting VAT returns/Paying HMRC

Businesses are required to submit their VAT return quarterly. A stagger can be picked up when applying for VAT registration. The VAT Return is submitted by commercial software and must be paid within the 7 days that follow the end of the quarter. If a direct debit is setup with HMRC, they will collect the liability a few days after this deadline.

VAT Penalty points

These are incurred upon late submission of a VAT return. One penalty point is incurred each time a return is late, and a £200 fine is applicable once the business reaches 4 penalty points.

Late Payment Liability

If the business cannot pay the VAT liability on time, for cashflow purposes or otherwise, they should attempt to make arrangements with HMRC. It is possible to request a payment plan, however this is always at HMRC’s discretion and dependent upon circumstances/reasoning.

If there is no payment arrangement, and VAT isn’t paid on time, you then the business incurs a penalty or interest depending on how late the payment is.

VAT de-registration

 If taxable turnover falls below £88,000 a business can de-register. It is of course possible to deregister if the business is no longer trading.