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The complexities of HMRC VAT schemes can result in you unintentionally overpaying or underpaying your VAT.
We offer a complete service; advice and planning, registration, control and reconciliation, filing VAT returns and dealing with HMRC on your behalf.
The compulsory VAT registration threshold is an annual taxable turnover of £85,000 but what counts towards this figure?
Understanding your taxable turnover
Your taxable turnover is the total of taxable (not exempt) goods or services that you have sold. This includes zero rated items (e.g. most food products, books, newspapers) but not exempt supplies (e.g. postal services).
The annual threshold does not mean your financial year, tax year or the calendar year. It means any consecutive 12 months in which your taxable turnover exceeds £85,000.
When do you need to register for VAT?
If your annual taxable turnover exceeds £85,000 then you have 30 days from the end of the month in which your taxable turnover exceeds the threshold to register.
You must also register for VAT if your expected turnover is expected to exceed £85000 within the next 30 days and you must register within that 30 days. Your registration will be backdated the date at which you realised you would exceed the threshold.
Are there any exceptions to registering for VAT?
If you exceed the VAT threshold due to a one-off event, then you may be able to apply for exemption e.g. selling an asset.
You may also be able to apply for exemption if you do not think that your annual taxable turnover for the next 12 months will not exceed £83,000.
If you feel you qualify for exemption you must still notify HMRC that your taxable supplies will go over the threshold within the allocated time frame and let them decide whether you qualify for exemption.
Can you deregister?
Yes, you can deregister for VAT if your annual taxable earnings fall below £83,000 then you can deregister however, you may wish to stay registered if you purchase mainly 20% rated supplies but sell mainly zero rated supplies as you may be due a refund.
Can you voluntarily register for VAT?
You can voluntarily register for VAT and this will ensure that you are ‘safe’ from the threshold and will not be liable to a penalty or surcharge notice.
What if you do not register on time?
If you do not register for VAT on time you can be liable for a penalty, as well as being liable to paying all of the VAT due backdated to when you should have registered (when your turnover exceeded £85,000).
What do you need to do when you are registered for VAT?
When you are registered for VAT, voluntarily or not, you need to file VAT returns. Usually, VAT returns are filed quarterly however you can use the annual accounting scheme if you wish to file returns annually.
Vat returns submit the data from your income and expenses and what VAT you have paid for HMRC to decide whether you owe a VAT bill or are due a VAT refund. You have 1 month to file your VAT return after the end of your VAT quarter and payment will also be due within this time.
There are a few VAT schemes your business may be eligible for.
Cash accounting – unlike normal VAT accounting when VAT is paid on sales within the VAT period whether or not the customer has paid. The cash accounting scheme enables you to pay VAT only once the customer has paid the invoice. This gives you instant bad debt relief as if the customer never pays, you never pay the VAT to HMRC. Your annual taxable turnover must not exceed £1.35 million to qualify for this scheme.
Flat rate scheme – on this scheme you pay a percentage of your annual VAT inclusive turnover but do not do a reclaim on purchases as this is already considered with the flat rate percentage. The percentage is set by HMRC and depends on the business type.
Limited cost business – if a businesses goods cost less than either 2% of its turnover or £100 a year (if its costs are more than 2%) then they can pay a flat rate of 16.5% whatever the business type.
Annual accounting – Rather than submitting VAT returns quarterly you submit returns annually with this scheme. This means you then have 2 months to submit your return at the end of the year and pay 9 monthly instalments rather than one lump each quarter. The final balancing payment or refund will be due at the end of the year.
What if I do not file my return on time?
If you do not file your return on time you can be liable to a surcharge penalty notice which depending on the situation could mean a fine or a notice which will stay under the businesses name for a year and if you faulter again then you will be liable to a penalty.
What if I made an error in my previous VAT return?
First things first, own up and tell HMRC as this is likely to help your situation. Depending on the severity of the error you may be able to correct it in your next VAT return or you may need to notify HMRC separately.
If the error is less than £10,000 or 1% of the box 6 figure on the VAT return for the period when the error was discovered (but less than £50,000) whichever is greater, you can correct the error in your next VAT return.
If, however, the error is outside of these requirements you need to submit Form VAT 652 “Notification of Errors in VAT Returns” to HMRC.