VAT Registration – Who needs to register for VAT and when do you need to register for VAT?

VAT Registration – Who needs to register for VAT and when do you need to register?

VAT is a major tax for many individuals and businesses, and it is important to make sure that VAT registration is done when needed, VAT returns are submitted on time, and VAT is correctly accounted for. If you are looking for accountants in Sutton Coldfield, Walsall, Birmingham, or the rest of the West Midlands to help with your VAT return please contact me to see how I can help.


For some businesses, deciding whether to be VAT registered will be a choice, and for others it is a requirement.

You MUST register for VAT if:
    • Turnover of VAT taxable goods and services supplied in the previous 12 months is more that £83,000 (The historic test), or
    • you expect to exceed £83,000 in the next 30 days alone (The future test).

Note that the VAT threshold changes every year, and from 1 April 2016 is £83,000.

Important dates for VAT registration
    • If you breach the VAT threshold of £83,000 based on the historical test you must notify HMRC within 30 days from the end of the month in which the limit is breached. You charge VAT on supplies from the first day of the following month.
    • If you breach the VAT threshold based on the future test you must notify HMRC within 30 days of the day you believe the supplies in the next 30 days alone will exceed £83,000. VAT registration is immediate and you must charge VAT straight away.

If you register late

  • You will still have to pay VAT from the time you should have registered
  • A penalty may be charged

 

Example of VAT registration using historical test

Assume that at 30/04/2016 taxable turnover is £80,000 for previous 12 months – no need to inform HMRC since the turnover is less than the registration threshold of £83,000.

Assume that at 31/05/2016 taxable turnover is £84,000 for previous 12 months – need to inform HMRC since the turnover is more than the registration threshold of £83,000.

Must register for VAT by no later than 30 June 2016 (Within 30 days of end of month of breaching turnover threshold)

Charge VAT on supplies from 1 July 2016 (The first day of the following month)

VAT Voluntary Registration

If your taxable turnover is below the VAT registration threshold you may still be allowed to register for VAT voluntarily.

Pros

– Look like a more legitimate business since being VAT registered implies that your turnover is in excess of £83,000

– Reclaim VAT on purchases

-If you sell zero rated items but buy standard rated items you can obtain VAT refunds

Cons

-If you have few costs and customers are not VAT registered, you could make more profit, or reduce your price if you were not VAT registered. For example, if you sell something for £100 and you are VAT registered you will have to charge the customer £120 (£100 plus VAT of £20). If you are not VAT registered you would charge £100 (no VAT since not VAT registered). As you can see, if your competitors are VAT registered (and your customers are not), you could either charge £100 and therefore be £20 cheaper than them, or you could charge £120 and make £20 more profit than them.

– Additional responsibilities and possible penalties. If you are VAT registered you will have to submit VAT returns to HMRC quarterly. If there are errors in the returns, or you are late sending them in there may be penalties.

 

Conclusion

The rules regarding VAT registration can be complex, and there may be other times when you are required to register for VAT, in addition to those discussed above. For information specific to your business please contact us for further information.