VAT

A VAT (Value Added Tax) return is a form you file with HMRC, usually four times a year, to show how much VAT you are due to pay them. If you're not registered for VAT, you won't file VAT returns.

Instead of trying to understand the complex VAT rules, you can get specialist advice and this is how we can help:

• review your business for VAT for compliance with regulations and best practice (which VAT accounting scheme suits is better for your business)
• ensuring VAT reliefs are maximised wherever possible
• complete VAT computations (monthly or quarterly)
• deal with correspondence with HMRC VAT department.

Should I register for VAT?

If you reach the VAT threshold (£85,000) then yes, registration is required. However, if you are in the early stages of the business when turnover is low, you have the option of holding off on registration until you’re truly ready - you don’t need to register immediately unless it’s actually beneficial for the business.

What are the benefits of registering for VAT?

1. Increased cash flow
   • Once registered you can claim back your VAT costs. If your set-up costs are high and include a VAT element, claiming that back can make a huge difference. You might be investing in IT, building an expensive website, or even hiring professional advisers or consultants. Reclaiming those costs can have a positive impact in those first months where you don't receive any income.
2. Credibility in the marketplace
   • There is a perception that being VAT registered makes you look professional. As a VAT registered business you might appear to have more credibility in the market and people will assume that your startup is bigger than it is and has been around for longer.
3. Winning more work
   • If you are a business-to-business startup and planning on providing services for large corporations, being VAT registered could give you an advantage when applying for a tender. Some corporations may not want to work with suppliers that aren't VAT registered.

What are the disadvantages of registering for VAT?

1. Your prices increase
   • As soon as you are VAT registered, the VAT is being passed on to your customers when you send out a VAT invoice. If you’re selling to consumers then you’re suddenly 20% more expensive than you were before.
2. The VAT rules are very complex
   • Some sectors may be VAT exempt and if you are charging VAT to B2B clients in these sectors they won’t be able to claim it back. You have to think about your customer base and the industries you work in before you make the VAT decision.
3. Not claiming the VAT you’re due
   • Due to the complexity of the process, there are lots of ways of missing out on VAT you’re due. It’s very easy for VAT claims to fall through the cracks.
4. You’ll need to pay a VAT specialist
   • If you register and you’re not an accounting professional, you will have to pay an adviser to take care of this. If you have £10,000 costs and £2,000 in VAT costs you could potentially claim, that’s probably the minimum for considering going through the registration process and engaging an adviser.
5. You could end up paying penalties
   • The deadline for filing and paying your VAT to HM Revenue & Customs (HMRC) is a month and seven days There’s a strong penalty regime if you’re late with a payment, or can’t pay. The more often you file late, the bigger the surcharges get, so if you get behind, that can spiral out of control and get very expensive.

Which VAT accounting scheme should I use?

VAT accounting schemes can make your life easier, simplifying your VAT accounting and in some cases improving your cash flow. If your taxable turnover of standard and reduced-rate supplies is below £1.35m (excluding VAT), or if you are involved in retail or selling second-hand goods, a VAT accounting scheme could suit you. Have a look at our blog on this here.