When your business starts to really grow, it can be incredibly rewarding. It shows your hard work has paid off, and your business is on the path to success, but it also brings more responsibilities if your business grows past a certain turnover threshold. This could include it being time to register for VAT.
Many businesses worry about hitting the VAT registration threshold and the responsibilities that come with it. At Tax Driven Accountants, we’ve helped numerous businesses on this journey and in this guide, we will clearly outline when to register and what changes afterwards.
Keep reading to find out more.
What is the VAT threshold?
Right now, the UK VAT registration threshold is £90,000 of taxable turnover over a 12-month period. Once you’ve hit the VAT threshold, you then have 30 days from the end of the month you crossed the line to notify HMRC.
How to work out if you’ve hit the threshold
Track your business’s finances carefully, or have an accountant do it for you. You need to track your VAT-taxable turnover over a rolling 12-month period and make sure you know when you’re hitting the VAT threshold in the UK.
Not sure what counts as taxable turnover? It’s the total value of everything your business sells or supplies that is not VAT-exempt. If you are not sure whether your business has hit the tax threshold, we recommend consulting an accountant, as they can provide more information.
How to register for VAT and what’s the deadline?
If you have hit the VAT threshold, or expect to exceed £90k, you must apply for VAT within 30 days of the end of the month in which you went over the threshold.
To register for VAT, you must create or log in to your HMRC account and submit your business details. These include your Unique Taxpayer Reference, National Insurance or company registration details, bank information, and turnover estimates.
Your application will be processed within 2-4 weeks, and even if you are waiting on your 9-digit VAT number to arrive, you must account for and begin charging VAT.
Should you register for VAT voluntarily
You should absolutely register voluntarily for VAT, as this means that you will be prepared when your business hits the threshold. If you fail to register when required by law, HMRC will backdate your registration and charge you for any unpaid VAT, plus additional penalties and interest.
We get it: running a business can be time-consuming, and you don’t always have time to stay on top of all your financial admin, which is why it is so important to have an accountant on your side as your business grows.
At Tax Driven Accountants, we offer bookkeeping services and can help with management accounts, so if you work with us and we spot that you’re hitting the threshold, we’ll help you register.
What changes once you register for VAT
Once you register, some aspects of how you operate your business will change. Some of the changes you can expect include:
Charge VAT on sales
Once you cross the threshold, you must charge VAT on all eligible goods and services at the correct rate. The standard rate on goods is usually 20%, so your goods will cost more.
Issue proper VAT invoices
The invoices you send will also have to change. When sending an invoice, you must display your VAT Registration Number, the new amount, tax rate and the final total.
Use digital record-keeping (Making Tax Digital) to register for VAT
One of the biggest changes you will need to get used to is diligent digital record-keeping through Making Tax Digital. You must keep digital records of all your sales and expenses and track them using approved accounting software.
If you want to learn more about your Making Tax Digital responsibilities, check out our guide here.
Reclaim input VAT
You can recover input VAT on purchases made before registration by listing them on your first VAT return after registration becomes active, as long as they comply with specific time limits and conditions set by the government.
Check whether you need to register for VAT with Tax Driven Accountants
Through this guide, you should now have a better understanding of when you need to register for VAT and how becoming VAT registered changes how you operate your business.
If you need help managing the finances for your business or you just want further advice about VAT registration, get in touch with our team today.
