Should I be Value Added Tax or `VAT` registered?
If your business services or sales are taxable then it’s yes.

Also if your turnover or sales exceeds the statutory registration limit then it’s a yes.

Could I register voluntarily for VAT?
That’s a yes even if your turnover is below the statutory registration limit.

It could well be an advantage for you to register voluntarily if:

  • The nature of your business or services means that your costs or purchases include VAT.
  • The majority of your clients or customers are VAT registered and can claim back the VAT that you will need to add to your turnover.
  • Your supplies are mainly nil rated for VAT purposes.

If the answer to the above questions is no then it may be better to delay registration until you have to.

VAT Registration Issues:
Don‘t add VAT to your sales invoices UNLESS you are registered – to do so is an offence subject to prosecution!

Don‘t delay if you do need to register – you will incur penalties and interest charges, as well as having to pay over VAT which you won‘t be able to recover from customers.

Special Schemes:

Most registered traders add VAT, (where appropriate) to their turnover and pay this over to HMRC, less any VAT you are claiming back, on a quarterly basis. Small businesses however ,can experience cash flow problems. You may have to pay over VAT added to sales invoices that is still not paid by your customers.

To help with this cash flow problem HMRC have created a number of “Special Schemes”. The most helpful are:

  • Cash Accounting – If your turnover is within certain limits for the scheme you will only need to pay VAT to HMRC when you are paid by  your customers. This is a significant advantage for businesses that have to grant extended payment terms to their customers.
  • Flat Rate Scheme – If your business is eligible to join this scheme you can simplify VAT accounting by applying a flat rate percentage to sales invoices paying this amount to HMRC.
  • Annual Accounting – With this scheme you agree an annual liability, based on the previous year’s accounts, and pay this in instalments. At the end of each year a final return is submitted and any balance due is paid or overpayment refunded.

Special Schemes for Retailers
– In normal circumstances , registered businesses need to keep detailed records of every transaction. For retailers this could prove extremely time-consuming. To avoid this, affected businesses can use one of the schemes set up specifically for retailers.

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