If you are in business then VAT can be a source of worry and concern. There are compulsory registration limits which are usually set each year in the Chancellor’s Budget statement. As you might expect, there are penalties for late registration, penalties for incorrect VAT Returns or late filed Returns as well as interest charges for late payment. Getting it right and getting the timing right is therefore important.
We are here to help you. Even when you are registered and you believe matters are straightforward, there are many aspects of VAT where the outcome may not be what you expected. For example you may be dealing with customers abroad, selling them either goods or services they may be located within the EU or outside. You may be involved in construction work and have property refurbishments or new building work.
A more recent change in legislation in January 2015 concerns the selling of electronic services – typically internet downloaded software etc. The problem here is knowing where the customer belongs. They could be in the UK, a country within the EU, or outside of the EU. For all such electronic sales to EU customers there are requirements to register for VAT in all EU countries (there is no minimum sales threshold). This clearly would be cumbersome to say the least.
To simplify the process you can register for the Mini One-Stop Shop (MOSS) and account for VAT via a quarterly Return for all such EU customer sales to the UK HMRC. This therefore applies to businesses which are currently below the UK VAT registration threshold. Once again as you might expect there are penalties for late registration, incorrect Returns and late filed Returns.
Some examples of questions we often encounter, and suggestions we can provide, include:
When do I have to register for VAT?
The threshold is set annually each 1st April. At 1st April 2016 this was set at £83,000. You must review your cumulative sales to date at the end of each month to assess whether you have exceeded the threshold in the 12 months to that date; or, if you have an expectation that you will exceed the threshold in a single 30 day period.
We can discuss planning opportunities with you if you predict that you may exceed the threshold in one or two months’ time. You may be able to delay registration, or advance certain sales in the 30 day period after the month in which you exceeded the threshold, but prior to the date of actual registration. Talk to us to see how we can help.
Can I register for VAT voluntarily?
You can register at any time, assuming you have, or intend to make, sales and are not in an Exempt category of business. It could help save you money as well as enhance customers’ perception of the size of your business.
How do I register for VAT?
This is normally carried out by completing an application form on line. We can help guide you through the process and complete the application form for you and register you for on line services thereafter.
What is the VAT Flat Rate Scheme?
In brief, this is a method which simplifies the gathering of information and thus the completion of the VAT Return each quarter. Businesses can join the scheme where they expect that taxable supplies will be below £150,000 for the next 12 months when they apply to join the scheme; exit rules have a 28% higher threshold so that you can continue to benefit from the scheme as you grow.
Customers will not know whether you are in the scheme; the rate of VAT charged and the format of invoices given to them remains the same.
The differences affect you as the business. You declare output VAT on your VAT inclusive invoices including exempt supplies; this is based on a given percentage which depends upon the main category of business that you carry on. Input tax on purchases is no longer claimable except for single “capital assets” costing £2,000 or more (including VAT). Choosing the right category is important. We can help you choose the appropriate category.
Can I save money by joining the VAT Flat Rate Scheme?
Businesses that would join the scheme would usually benefit not only from simplified record keeping, but by paying over less each quarter to HMRC than they would otherwise do using the normal methods for VAT Returns. If you register for VAT and join the VAT Flat Rate Scheme at the same time you can use a rate which is 1 percent lower than the published rate for the first twelve months.
So that is an added incentive. There are possible planning opportunities which would enable you to delay an exit from the scheme when sales are growing. Talk to us to discuss how this could be achieved. The point here is to discuss this in advance.
What is the Cash accounting Scheme and could it benefit my business?
The standard method for accounting for VAT on your Return is to use the dates of sales invoices and purchase invoices. It should be noted that if a customer pays up front under this method, then you must account for the proportionate VAT element of the money received (as clearly you could be seen to simply delay producing an invoice to delay paying the VAT to HMRC).
If you use the Cash Accounting Scheme you account for VAT on sales and purchases based on when you received money or paid suppliers. This can be extremely helpful for businesses who often have to wait to be paid by their customers, but have little delay in paying suppliers. This can improve cash flows. You can use the Cash Accounting Scheme if your sales to not exceed £1,350,000 excluding VAT when you join the scheme. Exit thresholds are 18.5% higher so you have room for growth before you have to exit the scheme.
Would you like advice on registering for VAT or joining a scheme?
Do you have specific questions on rates of VAT to charge?
Do you need help preparing your VAT Returns?
If the answer is yes to any of these concerns, then please contact us straight away by telephoning 01932 564098 or email us using our ‘Contact Us’ page.