One of the common questions I’m asked is ‘Should I Register For VAT? or ‘What are the benefits/advantages of being VAT registered?’. Below I discuss;
• What is VAT?
• Should I be VAT registered?
• Advantages and Disadvantage of VAT registration
• What are the different VAT schemes available?
• How to apply for VAT Registration
What Is VAT?
VAT (or Value Added Tax) is a charge made on the sale of goods and services by VAT Registered companies in the UK. The current standard VAT rate in the UK is 20%. By being VAT registered these companies collect VAT on behalf of the HMRC. In doing so they are also entitled to claim back the VAT they have been charged themselves on products and services.
Should I Be VAT Registered?
If throughout the course of a rolling 12 month period your turnover exceeds the VAT registration threshold (which is currently set at £83,000), legally you must be VAT registered.
There are also other benefits of being VAT registered, even if your turnover is less than the VAT threshold.
Advantages Of Being VAT Registered
You are able to reclaim VAT that you are charged by other businesses for goods and services. This is particularly beneficial if your business purchases a large quantity of materials.
Being VAT Registered makes your business look larger and suggests your annual turnover is greater than £83,000. This can help when you are competing with other businesses that are not VAT registered.
Your business customers, if VAT registered themselves, can claim back the VAT you charge, meaning there is no net change in the amount they pay.
Your VAT number can be displayed on invoices/websites, which can make your company look more appealing to potential customers.
Disadvantages of Being VAT Registered
Customers that are not VAT registered may be put off using your products or services due to the additional 20% VAT charge, compared to using a non-VAT registered company.
Your business needs to maintain clear records throughout a rolling 12 month period and file a VAT return every quarter.
Which Vat Scheme?
Standard (or Accrual) Scheme
The standard scheme is based upon the date when your invoices are sent. You will therefore need to pay the HMRC by the end of the quarter in which you send the invoice. This can sometimes cause cashflow problems for small businesses if payments are not received quickly by customers.
Cash Accounting Scheme
The Cash Accounting Scheme is based upon the date when your invoices are paid. This scheme is better suited for small businesses because VAT is owed to the HMRC at the end of the quarter in which a business pays for a good or service. This ensures the money is in your account ready for when your VAT is payable to HMRC.
Flat Rate Scheme
The net amount of VAT you pay to HMRC is usually the difference between the VAT that you charge customers and the VAT that you pay on your own purchases.
For Contractors and small businesses in the service sector, the Flat Rate Scheme can be advantageous, to discuss further speak to us to learn if it suits your business.
If you’re uncertain whether you should be VAT registered, or which VAT scheme is best for you, then Haiders are here to help. We offer a full VAT service which will ensure you collect the right amounts of VAT and make the appropriate payments to the HMRC.
Simply get in touch now by calling us on 01582 463608 or emailing us at email@example.com