Like a lot of parents, I’m super busy and don’t have time to trawl the Internet researching a topic, let alone understanding it in my sleep deprived brain fug. So I’ve done the work for you, condensing topics down to the essentials you need to know plus more detail if you need it.
What You Need to Know
- You must register for VAT if your turnover (sales) is more than £85,000 in a year
- If your turnover is less than £85,000, you can still register voluntarily
- Once registered, you will be responsible for submitting regular online VAT returns and payments
This guide applies for sales and purchases made within the UK only, if you have any transactions in the EU or Worldwide, please seek advice from HMRC or an accountancy professional.
In More Detail
HMRC requires you to register for VAT if your turnover is more than £85,000 in a rolling year (it is not linked to tax years). This value only relates to turnover on products or services that would not be exempt from VAT. For example, children’s clothes have a 0% VAT rate but are not classed as exempt, so the £86,000 limit applies.
Once you are registered for VAT, you must start charging VAT on invoices that you send to your customers. This amount is then paid to HMRC. Registering also means that you can reclaim any VAT that you have been charged by suppliers.
You can also voluntarily register for VAT if your turnover is below this amount. This can be beneficial in the following circumstances:
- If your customers are in a position to be able to reclaim the VAT that you charge them, as the net price they pay will not change. This usually applies if you are supplying goods or services to other businesses or institutions, rather than the general public.
- If your suppliers charge you VAT, as you will be able to offset this amount against the VAT you need to pay on your sales.
- If your turnover is expected to exceed the £85,000 limit in the future, as you can get your record keeping in order before this point
What To Do
Firstly, register for VAT with HMRC using this link. You can register online and you can apply to have an ‘agent’ which is someone who is authorised to complete your VAT returns on your behalf.
You will be sent your VAT number. You need to show the impact of VAT on your invoices, even if you haven’t received your VAT number yet. You can either do this by increasing the total amount payable by the VAT amount, or keep the price the same. This will mean that the total income you receive will be lower as you will need to pay the VAT amount to HMRC.
Once you have received your VAT number, update your invoices to include this. You should also reissue any of the invoices you sent out whilst waiting for the VAT number, with the VAT amount clearly shown.
VAT returns are due on a quarterly basis, and must be submitted by the end of the month following the quarter and paid within seven days after that. For example, if your quarter runs Mar-May, your return would be due to be submitted by 30th June and payment made by 7th July.
On your first return, you can reclaim for VAT paid on purchases before you were registered. This only relates to products bought within the last 4 years that you still have in your possession, or services bought within the last six months. It only relates to products and services that have been used for ‘business purposes’.
On your VAT return, you will enter the amount of turnover you have earned, plus the amount of VAT you have charged on that turnover. You also enter the amount of expenses, plus the amount of VAT you have paid on those costs. The sales and expenses numbers are exclusive of VAT.
If the amount of VAT charged on turnover is more than the amount paid on expenses, you will need to pay the difference to HMRC. If the amount is less, you can reclaim the difference.
You can check the VAT rates and exemptions on products and services here.
HMRC has lots more guides and advice here.