When do I need to register for VAT?
If your turnover will be above £79,000 for past 12 months, you must be registered.
So I don't need to worry about VAT if my turnover is less than £79,000?
You may still choose to register on a voluntary basis for VAT, even though you don't have to.
Why would I do that?
It will allow you to recover VAT on your costs. This means if you are paying £120 for something, you can claim back the £20.
That sounds good, why doesn't everyone do that?
When you are VAT registered, you can recover VAT on costs, but you must charge VAT on your sales.
Some business are not able to pass this extra costs onto their customers, like retail shops etc.
Other businesses are able to add VAT without affecting their customers, as their customers are also VAT registered.
OK - so once I register, I just charge 20% on sales, less any VAT paid, and pay this to HMRC?
Yes, if you want...
Want? I have a choice?
There are ways to reduce the amount of VAT you pay to HMRC. Schemes, like the flat rate scheme can actually mean that you pay pay less overall to HMRC in VAT.
Great - so register for VAT and the flat rate scheme?
No - it might not be suitable for everyone, you will need to have some idea of you expected income and expenses going forward to figure out the best solution
Once I am registered, I have to do a VAT Return everyone quarter?
If you want...
You mean I have more choices?
Yes, you can go for the annual accounting scheme and only do one VAT Return every year rather than four. That should help reduce your admin burden.
This all sounds interesting, what else should I be thinking about?
There are other VAT schemes available and you may also be able to be exempt from VAT or apply a reduced rate depending on the products or services you sell.
There seem to be a lot of options, what should I do?
You can keep it simple and HMRC will never question you. They are happy for you to carry on that way as they have no incentive to reduce your VAT costs.
But if you want to help yourself and turn VAT from a cost to an opportunity, speak to a qualified tax adviser.
About the author
Kabir Ali CTA ATT is the founding Director at KBR Accountancy.