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Frequently asked questions
By law, you must register for VAT if your total taxable turnover in the last twelve months was over £85,000 or your expected turnover is going to reach over £85,000 in the next 30 days.
Once you are registered for VAT you will need to start charging VAT on your products and services. This will mean that you need to start putting the VAT element on your sales invoices each time you sell a product or service.
For the full rules on VAT registration, you can refer to HMRC’s web pages here:
There may also be benefits to registering for VAT even if your turnover has not met the threshold. Our friendly experts at Banks Sheridan are on hand to discuss these with you.
You can register for VAT online on the government’s website. You will need a Government Gateway user ID and password and if you do not already have one, you can create one when you register.
Our friendly VAT experts at Banks Sheridan can register for you and help you with all your VAT compliance responsibilities.
When you register for VAT, HMRC will send you a VAT registration certificate. Your unique VAT number is shown on that certificate. It is important that you show this VAT registration number on your invoices when you sell a product or service.
Usually, you can deregister for VAT if you are confident that your turnover will fall below the VAT threshold in the next twelve months, if you have ceased trading, or if you have sold your business. The VAT deregistration threshold is currently £83,000. It is important to consider your future income and whether any plans you have may generate any additional revenue that would take you back above the threshold.
There are other circumstances for deregistering your business for VAT – our friendly experts at Banks Sheridan are on hand to discuss everything with you and offer the best advice for your business.
Standard VAT accounting means that you have to pay VAT to HMRC as you raise invoices and claim VAT back from HMRC as you are invoiced. With the Flat Rate Scheme, your business pays a fixed rate of VAT to HMRC instead of paying/claiming the difference between the VAT charged on its sales and the VAT paid on its purchases.
This VAT scheme is usually used for small businesses to help simplify the VAT Return process as it uses a single fixed percentage for calculating your taxable turnover. Although a simple method for calculating VAT, it can have its disadvantages as the business cannot reclaim any VAT on its purchases. The team at Banks Sheridan are here to work in partnership with you to help you choose the best scheme for your business needs.
Standard VAT accounting means that you have to pay VAT to HMRC as you raise invoices and claim VAT back from HMRC as you are invoiced.
If your VAT taxable turnover is £1.35 million or less VAT cash accounting may be of benefit to you as you only pay VAT on your sales when your customers pay you and reclaim VAT on your purchases when you have paid your suppliers. Our friendly experts at Banks Sheridan can discuss all aspects of VAT with you and advise on the best scheme for your business.
If your VAT taxable turnover is £1.35 million or less, the VAT annual accounting scheme may be of benefit to you. This scheme allows you to complete one VAT return each year instead of one per quarter. You would pay instalments of the VAT that you expect to owe so that you don’t get a big VAT bill at the end of the year. Our team at Banks Sheridan can bring value to your business by advising you on the best scheme to suit your business.
A VAT receipt or invoice should be provided by anyone you purchase from that is VAT registered. The VAT receipt should contain details about what you purchased, the amount you purchased it for and at what VAT rate and it should also show the suppliers name, address and VAT registration number.
VAT receipts are required by law to support your VAT claims on purchases. HMRC would request to see all your VAT receipts/invoices in the event of an inspection. If you do not have a VAT receipt for a purchase you cannot claim the VAT back.
If HMRC decide to inspect your records and an error is found, they will assess the tax due and charge interest on any underpayment. In addition to this your business may face a misdeclaration penalty so it is very important that you claim or pay the correct amount of VAT. Our friendly experts at Banks Sheridan are always on hand to provide the care and attention needed to ensure full compliance with all the regulations.
These are the most common mistakes business owners make when claiming or paying VAT to HMRC:
- Not having a valid VAT receipt/invoice when claiming input VAT (VAT on purchases) – a VAT receipt is required for evidence and without this you are not permitted to claim VAT
- Claiming VAT on client entertaining – HMRC does not allow VAT on any kind of business entertainment, even though you may consider this part of your normal business activities. Claiming VAT on staff entertainment is allowed, but not that in the course of client/potential client relationship building.
- Claiming VAT on exempt purchases – while recording your transactions it is important to check the information contained on the document and not assume that it is for a standard rated item.
- Incorrectly calculating the VAT on fuel for employee expenses. Where employees claim business mileage, there are rules on what VAT can be claimed, which depends upon the size of the car’s engine. HMRC update and change these rates so it is important to check what can be claimed regularly.
- Claiming VAT on the purchase of a car where it is not exclusively used for business purposes.
- Failing to submit VAT Returns and paying VAT to HMRC on time
- Not charging VAT on non-standard supplies – income outside usual trading can sometimes be overlooked for a different VAT treatment so too little or too much VAT can be claimed.
Exempt items are products on which no VAT is paid or charged but the transactions for these items should still be recorded on the VAT Return. Examples being insurance, finance and credit, education and training, subscriptions to membership organisations
Zero rated items are goods on which the Government charges VAT but the rate is currently set to Zero. Transactions for these items should still be recorded on the VAT Return. Examples being children’s clothes, footwear, basic foods, books and newspapers.
Outside the scope
Outside the scope of VAT means that VAT does not apply to the goods or services. Transactions for these items should not be recorded on the VAT Return. Examples being charges levied by the government like MOT testing, wages paid to employees, payments to pension providers, PAYE payable to HMRC. Your physical VAT reclaim or payment to HMRC is also outside the scope and this transaction should not appear on the VAT Return.
Making Tax Digital for VAT is part of a wider government initiative to digitalise all tax systems and make it easier for taxpayers to assess how much tax they owe.
Making Tax Digital for VAT requires all VAT-registered businesses to keep records digitally and file their VAT Returns using MTDfV compatible software. This allows your accounting software to be directly linked to HMRC and your software will receive information from HMRC about what returns are due and by what date.
If your business is registered for VAT, you must submit your VAT Return via MTDfV compatible software. Our friendly cloud accountants are experts at using Xero, QuickBooks Online, Sage Business Cloud Accounts and FreeAgent and can help you decide which one would be best suited for you and your business.
We have a wealth of useful business, tax and financial information in our Information Hub – contact us for help and advice specific to your circumstances.
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