Untangle the web of VAT requirements with advice from Darren Stone at Leon & Company Chartered Accountants.
Should I be registered for VAT?
So, that depends more about the type of business that’s being registered. If a company makes “taxable supplies” – in other words, sells products or services that come into the scope of VAT – and they sell more that £85,000 per year of this, then you will be obliged to register for VAT in the UK. Being registered means you would have to add on 20% to your sales price, but the good news is that you can, in turn, claim back any VAT on business costs being suffered.
What if my turnover is less than £85,000?
In simple terms, you shouldn’t need to register if you sell less that £85,000 of goods or services. And often in the early days of trading, it might take some time to even reach that level of sales. However, it is also worth pointing out that it is possible to voluntarily register for VAT, and sometimes there are good reasons why you might want to do this.
Who should be thinking of doing this?
If you are operating in the business-to-business (B2B) environment, then a VAT number can often make a business look bigger than it is (or more accurately not imply that you are only just starting out!). And more importantly, you will be able to add VAT on top of your price, which your business customers won’t mind as they themselves should be able to claim this back. This can actually be beneficial to your bottom line.
What happens if my new business sells to the general public, and not other businesses?
So, it is less straight-forward if you are in the business-to-consumer sector (B2C) as the general public can’t claim back the VAT incurred. If you run a B2C business then usually it would be best to wait until you are obliged to register for VAT, and even then, you have to think very carefully about how the VAT is accounted for in the sales price. In the UK the VAT rate is currently 20%, which is a significant additional amount to charge customers. In any case, always take professional advice for any of these matters.
Article first published in JLife magazine.
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