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TAX •  18 OCTOBER 2022 • 3 MIN READ

How (and when) to register for VAT

How (and when) to register for VAT

Value Added Tax (VAT) is a tax on most goods and services in the UK.  

There is a standard rate of VAT of 20%, a reduced rate of 5% (which is less common), and a zero rate at, you guessed it, 0%. VAT is added to the price of taxable goods and services, except if the supplier is not registered for VAT, if the goods and services are “zero-rated”, or if the goods and services are exempt.

In this blog, we'll cover:

  • How does VAT work?
  • What are taxable goods and services?
  • When should I register for VAT?
  • When to deregister from VAT?

First up – how does VAT work?

Value Added Tax (VAT) is a tax added to most goods and services in the UK.

Most goods and services are standard rated items, meaning VAT is charged at a rate of 20%. 

Reduced rate goods and services include things like children’s car seats and home energy, which are charged at the lower rate of 5%. 

Zero rated goods and services include children's clothes and footwear, basic foods and water, books and newspapers. 

As a business, you’re acting as one of the government's agents by collecting VAT on your product or service. At the same time, your business is also contributing VAT each time it buys something (and for most purchases, you’re eligible to have the VAT refunded).

At the end of each VAT period (usually every 3 months), you need to calculate the difference between the amount of VAT you’ve collected and the amount you’ve paid on goods and services to figure out if you pay more to HMRC, or receive a refund.

This article is going to reveal whether you should register for VAT or not. If you’d like a deep dive into understanding VAT, check out our article, VAT basics.

What are taxable goods and services?

Taxable goods and services are the goods and services that you supply and receive in return for a consideration (money, compensation or reward)*. 

Goods include all types of personal and real property except money.

Services cover everything else besides goods and money – imagine things like consultations with a legal advisor or having your car repaired.

* This is irrespective of whether you’re producing a profit or not.

Taxable goods and services don’t include:

  • Goods and services supplied by businesses that aren’t registered for VAT, along with exempt supplies such as:
    • insurance, finance and credit
    • education and training
    • fundraising events by charities
    • subscriptions to membership organisations
    • selling, leasing and letting of commercial land and buildings — this exemption can be waived
    • Salaries and wages

When should I register for VAT?

You must register for VAT if you carry out a taxable activity and if your turnover:

  • Was over £85,000 for the last 12 months, or
  • you expect your turnover to go over £85,000 in the next 30 days.

If you’re charging 0% VAT on some of your sales, know that these sales still count towards that £85,000 threshold. Sales of exempt items do not count towards this threshold however. 

Voluntary registration

Even if your annual turnover is under £85,000, you can choose to register for VAT. It can be useful in a few situations – like when you’d like to purchase a large asset, or when the majority of your sales are at 0% VAT (zero-rated).

If your business changes from being non-registered to registered for VAT, you’ll need to make some changes – follow this link for more detailed information.

Charlotte

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When to deregister from VAT

You can deregister from a voluntary registration at any time, as long as your sales are under the deregistration threshold of £83,000 and are expected to stay there.

Here are your obligations prior to deregistering:

  • You'll have to submit a final VAT return for the period up to and including the cancellation date
  • You must account for any stock and other assets you have on this date if both of the following apply:
    • you reclaimed or could have reclaimed VAT when you bought the assets
    • the total VAT due on these assets is over £1,000
  • All VAT debt must be paid

How to deregister from VAT

Head over to HMRC’s website and cancel your VAT registration through your government gateway account.

Who are Beany?

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant would.

We have a dedicated team of remote accountants to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.

Charlotte

Charlotte Wass

General Manager, Beany UK

Chartered Accountant and Chartered Tax Adviser based in London. I love autumn, otters and Malteasers, and I hate spiders, peanut butter and the London Underground.

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