VAT registration can be a time-consuming, confusing and expensive exercise. If you have a turnover in excess of £82,000 in the last twelve months (from April 2015) or in the next thirty days, VAT registration almost certainly applies to you.
There may also be reasons why VAT registration could benefit your business even if your turnover does not meet the threshold for compulsory registration.
From 1st January 2015 VAT rules changed in the EU for sales of digital services from businesses to consumers. If your business sells digital services to consumers in EU member states, VAT is charged at the rate due in the consumer’s country.
To pay the VAT due on these sales you can either:
- register for VAT in each EU country where you supply digital services to consumers
- use the VAT MOSS scheme in one EU country
An example of this is the VAT Flat Rate Scheme
With the Flat Rate Scheme:
- you pay a fixed rate of VAT to HMRC (rates differ depending on your profession/trade and you receive a 1% discount in your first year)
- you keep the difference between what you charge your customers and pay to HMRC
- you can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000
The rates for each business sector can be seen on the following link:
In the example below the client bills the customers £100k plus VAT so collects £20k in VAT. The Flat Rate applicable to their business is 14.5% so in the 1st year they have to pay 13.5% (1% discount) of their gross sales, so they pay £16,200 in VAT across to HMRC (13.5% x £120,000). They have therefore made a profit of £3,800 on VAT.
|VAT flat rate scheme|
|Profit to company||3800|
|Based on a turnover of||100k|
|Net amount company invoices client||100,000|
|VAT charged to client||20,000|
|Flat rate VAT 13.5% (this includes a 1st year discount of 1%)||13.5%|
|VAT to be paid to HMRC (13.5% of £120,000)||16,200|
|VAT received from client||20,000|
To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.
Wagner Mason Accountants will advise you on the best VAT scheme for your business to ensure you retain the maximum amount possible, your statutory obligations and assist you in maintaining the necessary records
Remember there may also be reasons why VAT registration could benefit your business even if your turnover does not meet the threshold for compulsory registration.
Wagner Mason Accountants will advise you on the best VAT scheme for your business to ensure you retain the maximum amount possible, your statutory obligations and assist you in maintaining the necessary records.
Other VAT Returns
VAT Returns are usually required every three months, known as your ‘accounting period’. Other than the best VAT scheme for your business, we will advise you on how to set up and maintain processes that allow you to keep accurate records of the information required by HMRC and financial details such as:
- Total sales and purchases
- Amount of VAT you owe
- Amount of VAT you can reclaim
- What your VAT refund will amount to
Annual accounting scheme
Paid in nine monthly or three quarterly instalments, VAT is calculated by looking at the VAT you paid in the previous year.
Cash accounting scheme
If you work with invoices, with the cash accounting scheme you do not have to pay VAT until you receive payment from your customer.
Margin schemes are best suited if you buy or sell second-hand goods, works of art, antiques or collectibles. There is a specific margin scheme if you are a tour operator. The ‘Tour Operators Margin Scheme’ often enables VAT to be accounted for without businesses having to register outside of the UK.