It’s a question we get asked many times by our clients, ‘should my small business be registered for VAT?’. The simple answer is either yes or no – but there is a slightly grey area which is decided by HMRC. The current VAT registration threshold is when your business exceeds sales of £68,000 in any twelve month period, or if you believe your sales will exceed this threshold within the next 30 days. So, if you’ve started a new business and you are selling around £6000 of ‘taxable’ goods or services per month, then around eleven or twelve months after you start trading then your business should be VAT registered. If you are an existing business, you should be looking at your turnover for the past twelve months to see if you’ve gone over the VAT threshold – to do this, at the end of each month, take off the oldest monthly sales figure and add the month that has just ended – as soon as the figure you’ve got reaches the vat threshold, you need to register.
As with most things in life, whether your business should be registered for VAT isn’t quite as simple as yes or no. In theory, as soon as you breach the £68,000 limit (which will increase on 1st April) in any 12 month period your business should be vat registered – but if you can prove to HMRC that this is only a temporary breach i.e. you will fall back below the threshold in the next 12 months, then they may grant you an exemption from registration – this is done on a case by case basis and it’s all about whether they believe your reasons for not needing to be registered for VAT. The process is the same as registering for VAT, except that you need to tell them why your business doesn’t need to register – keep in mind that if you fail to convince them, then they will automatically register your business for VAT.
Getting your business vat registered is not something to take lightly – if you fail to register for VAT when you should and are investigated at a later date, HMRC can back-date the VAT you should have collected from your customers and make you pay it – this could be 17.5% of all of the sales you have made dating back a number of years, plus a fine for not VAT registering your business. The costs of getting your VAT registration wrong can be very high, so if you are in any doubt, please contact a qualified accountant to advise you.
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