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VAT Registration Advice

Most countries have some form of sales tax. Currently in the UK you do not have to become VAT registered until you or your business is turning over in excess of £67,000 p.a.

You can choose to become VAT registered if you wish, even if your turnover is much lower. It could save you a lot of money and even help your cash flow temporarily.

Paying VAT is simply unavoidable no matter what your drinking buddy says; they can and will catch you. Pleading ignorance is no excuse. Some individuals and businesses choose to become VAT registered long before they are turning over anywhere near the threshold precisely for the reason that it does give the impression that you are turning over at least £67,000 (in the UK). Being VAT registered means that you must quote your VAT registration number on all correspondence, which again for some people appears to give the individual or business more kudos or potential clout. By adding on VAT to an invoice it can give the impression of a more professional and longer-established business and, dare I say it, can mean that you are able to charge more for your work in the first place.

There is no such thing as no VAT. There are products (such as children's clothes, books and tampons) that are charged at 0% VAT, which does mean we as consumers don't pay anything, but the door is always open for that to change.

If you have not contacted an accountant, I would strongly recommend that you get in touch, if only to hear an explanation of VAT and how it will impact your business. I read about five guidebooks at the time of launching my first business and I think that I was more confused afterwards than I had been before. We were looking to retail toys and books; some were imported from EC countries, some from the Far East and some were manufactured in the UK. The combination of VAT applied at 17.5% and 0% was mind-boggling and I was pleased to pay someone else to deal with the headache.

As well as knowing and recording when and how much VAT to charge your customers, you must also keep account of the VAT your business has paid to others. If you become VAT registered you will have to submit a VAT return every quarter. Although you will be trusted with completing the empty boxes on the form, every now and again the figures will be queried by Customs & Excise and you will be asked to show proof. Ordinarily you will be asked to show specific invoices and receipts to ensure that the figures tally. Accountancy software such as Sage will assist you with this menial but important task. At the end of the day Customs & Excise would much rather you asked 'obvious' questions before submitting your VAT return. Bear in mind that if your returns are consistently incorrect, this can actually lead to a stretch in your local prison. The good news is that, now and again, especially when you are first starting up a business, your VAT liability is actually a negative and you get a cheque from them - but this is never sustainable because it means you are spending more money than you are receiving.


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