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Should my business be VAT registered? - news article image

Should my business be VAT registered?

30 Jul 2018

2 minute read

One of the areas that I commonly see clients struggle with is VAT (Value Added Tax). This is hardly surprising as it is a tax which is very complex and the rules can be different across industries and business type. In its simplest form, VAT is a tax on goods or services whereby the end consumer bears the brunt of the tax which is usually 20% on the goods or services provided. 

VAT thresholds 

Most businesses will need to be VAT registered if over a 12 month rolling period their vatable turnover is £85,000 or more. This is not always the case through and this is one of the first pitfalls we see business fall into. Some businesses with vatable turnover under £85,000 may choose to become VAT registered voluntarily as their customers or clients may only do business with another VAT registered business on the basis that they could then reclaim the VAT on the goods or services supplied. Other businesses remain VAT registered when there is no obligation to be as they have slipped below the £83,000 threshold by which they may de-register for VAT. This may result in paying over money which the business could otherwise keep. 

VAT exemptions 

Some businesses are exempt from being VAT registered due to the nature of their services. For instance some medical or financial services are exempt from VAT. This means that no VAT can be charged on the services provided, however it also means that no VAT can be claimed on expenses where VAT has been applied. 

What types of VAT schemes are there? 

There are different types of VAT schemes businesses can be registered for – Accruals / Cash / Flat Rate Scheme amongst others. Most businesses opt for the Accruals scheme whereby the business accounts for VAT when a sales invoice is raised as well as when a purchase invoice is issued. Regardless of when the invoice is paid, the VAT is accounted for on the return in question. The Cash basis can prove to be advantageous in situations whereby your client or customer takes a long time to settle your invoice. Under the Cash basis, your business only accounts for VAT on the return when money has been received from the client or customer. Most businesses will also opt to do their VAT returns quarterly, with filing of those returns due one month and seven days after the quarter end. Direct Debits can be set up so that any liability is paid automatically. Alternatives to Quarterly VAT returns include Monthly and Annual reporting. This is useful for some businesses. Monthly returns can be better for cash flow if your business finds itself in a VAT repayment position from HM Revenue & Customs.

Should my business be VAT registered? - news article image

To discuss your particular circumstances, contact Gary Hamilton on 01865 292200 or gary.hamilton@shawgibbs.com

Author:

Gary Hamilton

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