Keeping you VAT compliant

Understanding whether you should register your business for VAT and ensuring the correct timing of registration can be complex. 

As a business you must register for VAT if:

• your total VAT taxable turnover for the last 12 months was over £85,000 (the VAT threshold). Or,

• you expect your turnover to go over £85,000 in the next 30 days

There are specific timeframes in which you need to register your business for either scenario above.  It is therefore important that you are not only monitoring your turnover to see if you fall within the VAT Threshold but complete the necessary registration on time.

You must also register if all of the following are true, regardless of your VAT taxable turnover:

• you are based outside the UK
• your business is based outside the UK
• you supply any goods or services to the UK (or expect to in the next 30 days)

Again it can be difficult to understand if these rules apply to your business.  Additional help can be obtained on the HMRC website by reading the guidance on non-established-taxable-persons (NETPs).

As a business owner it may also be advantageous to elect to register for VAT even if your turnover is less than the VAT limit.  This is known as voluntary registration and enables you to claim back VAT paid by the business for goods and services from suppliers.

Once registered you are legally required to pay HMRC any VAT you owe from the date of registration.

There can be penalties for late registration depending on the amount owed and timeframes involved.  Any VAT due will also be calculated and backdated to the date at which you should have registered.

Equifino can be appointed as your Agent to deal with HMRC on your behalf in relation to VAT.  This can cover the monitoring of your turnover to ensure the correct timing of your VAT registration, recommending voluntary registration if appropriate, liaising with HMRC on your behalf as well as ensuring you pay the correct amount of tax.

As a VAT registered business, in order to ensure you pay the correct amount of VAT to HMRC you must first calculate the correct amount of VAT to charge for your goods and services.

In order to do this, you need to understand fully when VAT is chargeable and at what rate.  There are 3 rates of VAT; Standard rate, Reduced Rate and Zero Rate.  See our FAQ below for more information about each.

In addition, you cannot charge VAT on exempt goods or services including financial services, investments and insurance, education and training, healthcare and medical treatment to name but a few.  A full list of exempt goods or services can be located on the HMRC website.

Once the total amount of VAT charged has been calculated you can then reclaim VAT you have paid on business expenses and pay the net amount to HMRC.  This calculation is made via your VAT Return.

There are specific rules around the amount that can be re-claimed when items are used for both business and personal use as well as a number of rules specifically around vehicles, fuel, travel expenses and business assets of £50,000 and above. 

Similarly, if you sell both taxable and exempt goods your business is considered “partly exempt” and there are different ways to calculate what you can reclaim.

Given the complexity of calculating the rates of VAT you should charge for your goods and services as well as what you can reclaim, many businesses work with an accountancy firm such as Equifino to help them navigate their VAT and ensure they pay the correct amount.

Making Tax Digital (MTD) for VAT is a mandatory requirement that requires VAT registered businesses to keep records digitally and submit their VAT Returns using MTD software rather than directly via their HMRC Gateway Account. 

This doesn’t mean any change to the majority of the work undertaken by your business in relation to the calculation, or payment, of your VAT.  As such;

• Your VAT returns will continue to be completed monthly, quarterly or annually
• You will need to make VAT payments on your current payment date cycle
• Spreadsheets can still be used to record business transactions if required

You will need to keep the following digital records to comply with MTD for VAT:

• Your business name and address
• Your VAT registration number
• Details of any VAT accounting schemes you are registered with
• For each invoice the date of supply, the net value (excluding any VAT) and the VAT rate used to calculate VAT.

All accounting information will need to be transferred to MTD compliant software so that when your VAT Return becomes due you can submit it through the software directly to HMRC.

At Equifino we can act as your Agent to ensure that not only is your business registered for VAT correctly but that it is registered for MTD and that your accounting software is MTD compliant.