An introduction to VAT registration


An introduction to VAT registration


What is VAT registration

VAT registration is the process of getting registered with the government when your company becomes eligible to file a VAT return.


VAT Threshold

Let’s say that the current VAT registration threshold is “X” and you have a business of supplying VAT taxable goods and services in the UK and the turnover of your business in the last 12 months has been more than “X” then you have to register for VAT. You also have to register for VAT if your business is expected to cross that “X” mark in the next 30 days.


The flat rate scheme

Important thing to keep in mind over here is that if you believe that your turnover will only temporarily be more than the amount “X” then you can apply for exemption from VAT registration. The question that is very often asked and needs to be addressed is that what to do when you are a small business. VAT rules in this case are no less than walking on a minefield and you might be interested in getting a fiscal representative to guide you. But the first thing to keep in mind in this case is that one ought not to use the flat rate scheme without filing an application with the HMRC in this regard. The point to note over here is that small businesses who think they will only temporarily stay above the threshold limit can use the flat rate scheme. This works out best because although you do end up paying to the HMRC in each quarter but it reduces the work you do whilst trying to record VAT sales and purchases. What you must remember is that you need to be in agreement with HMRC and you must have applied with HMRC before you start using the scheme or you will have to pay a penalty.




How does VAT work?

Now let’s see how VAT really works. If you are a seller then you have to charge VAT at a given rate and you act as a tax collector and every 3 months you need to handover the VAT you have collected to the HMRC. Let me now explain input and output VAT with an example because you will need to understand the same before you can calculate the VAT payable to HMRC. Let’s say your customers pay you 1000 pounds as VAT and during the same period you buy something worth 200 pounds and pay 40 pounds as VAT on it then you have to pay 960 pounds to the HMRC. The amount you collect from your customers is called Output VAT and the amount you pay is called Input VAT and the balance amount is the VAT you pay to the HMRC. So, because you are a VAT registered company you earn 40 pounds. Another reason to register is to have a good brand image because you having a turnover limit less than the threshold limit would look very little.