If you fail to notify HMRC that you should register for VAT the penalty can be high. Anywhere between 0% and 100% of any VAT that you owe can be charged. HMRC could effectively double your VAT bill with these additional penalties. If you should register for VAT it is important to act now.
Should I register for VAT – Compulsory VAT Registration?
Compulsory VAT registration applies if:
- during any 12 month period your ‘taxable supplies’ exceeds the VAT registration threshold
- you expect your ‘taxable supplies’ to go over the VAT threshold in a single 30 day period
The VAT registration threshold in 2018 is £85,000. The government have stated that they will not change this VAT threshold for the next 2 years.
The VAT threshold of £85,000 is your turnover which is not to be confused with profit. You must include all products and services which are liable to VAT. This includes zero rated VAT sales but does not include sales or services which are exempt from VAT.
If compulsory VAT registration applies you must register for VAT within 30 days of exceeding the VAT threshold.
Failure to register for VAT may lead to you receiving a penalty. This depends on how much you owe in VAT and how late your registration is.
Should I register for VAT voluntarily?
You can register for VAT even if your taxable supplies are below the VAT threshold.
The advantages of registering for VAT are that you can claim the VAT back on the expenses that your business incurs. Also being VAT registered can make the business seem larger than it actually is. Your customers will know that your turnover is below £85,000 if you aren’t VAT registered.
The main disadvantage of registering for VAT are the potentially higher prices you must charge to your customers. You must add VAT onto your sales or services. At the current VAT rate of 20% this could deter some of your customers. However if your customers are VAT registered they can reclaim the VAT on your invoices so there is no overall price increase for them.
It is therefore important to know who your customers are. If they are VAT registered businesses themselves they may expect you to be VAT registered however if your customers are the general public or other non-VAT registered businesses then you need to consider how a 20% price increase will effect your competiveness.
How do I register for VAT?
The simplest way to register for VAT is to do it online using HMRC online services. A link to the HMRC webpage for VAT registration is below.
Alternatively if you have an accountant or advisor they can register you through their agent portal. This is our preferred method as it relieves the client to focus on their business and by doing it ourselves we can ensure that it is done correctly and can respond to any HMRC queries should they arise.
DISCLAIMER – Please note that the content contained in this article is for general information only and is not a substitute for professional advice – read our full disclaimer