Understanding VAT (Part 3)

Registration

Registering for VAT tells HMRC that your business will now start making regular VAT submissions.

You must register for VAT if:

• Your business’s VAT taxable turnover is more than ￡85,000 in a 12-month period.
• You expect your taxable turnover to go over ￡85,000 within the next 30 days

12-month period

For VAT purposes, this isn’t a calendar or financial or tax year – it’s the rolling 12-month period leading up to this point in time. So, if you’re near the threshold you’ll need to keep a careful eye on your figures. If you go over the threshold in any 12-month period, you must?register for VAT.

Effective date of registration

This is the date you went over the registration threshold or?requested voluntary registration.

Exempt goods and services

These are supplies and services that you can’t charge VAT on. For example, insurance, postage stamps, or health services provided by doctors.

Out of scope

This refers to goods and services which are outside the VAT tax system, that you can’t charge or?reclaim VAT?on. Charges outside the scope of VAT typically include charges made by the government, such as MOT testing or the London congestion charge. Another typical example is the wages that you pay to employees.

Registration exception

You can apply for a registration exception if your taxable turnover only goes over the threshold temporarily. Write to HMRC with evidence showing why you believe your VAT taxable turnover won’t go over the de-registration threshold of ￡83,000 in the next 12 months. HMRC will either confirm your exception or register you for VAT.

Registration threshold

The taxable turnover figure that makes your business liable for compulsory VAT registration. The current threshold is ￡85,000. It usually increases on 1 April each year.

VAT number

This is the unique reference number which identifies your VAT registration with HMRC. You’ll need to include your VAT reference number on every invoice.

VAT rate

This is the rate of VAT which applies to goods and services.

• Standard rate: This is the most common, and is 20%
• Reduced rate: Applies to some goods and services, such as gas and electricity
• Zero rate: VAT is charged, but at 0%

Voluntary registration

Some businesses find it useful to register for VAT even though their turnover is less than registration threshold. This is known as?making a voluntary registration. There can be several reasons for doing this, including being more tax efficient.

Taxable turnover

VAT taxable turnover is the total value of your UK sales that aren’t VAT exempt, including:

• Goods you hire or loan to customers
• Business goods that you use for personal reasons
• Goods which you barter, part-exchange, or give as gifts
• Services you receive from businesses in other countries that you had to ‘reverse charge’
• Building work over ￡100,000 which your business did for itself
• Zero-rated items

Zero-rated items

Zero-rated means that the goods are still VAT-taxable but the rate of VAT you must charge your customers is 0%. You still have to record them in your VAT accounts and report them to HMRC. Examples include children’s clothes and shoes, or motorcycle helmets.