11 STEPS TO SETTING UP AS A SOLE TRADER (SELF-EMPLOYED) - Post 6
ITEMS TO DO BEFORE TRADING Cont'd
7. VAT REGISTRATION
If your business VAT taxable turnover is under £85,000, there is no need to register for VAT but you can register voluntarily unless everything you sell is exempt. You must register if your VAT taxable turnover is more than £85,000 (the ‘threshold’).
This could be if:
· It is expected that VAT taxable turnover to be over £85,000 in the next 30-day period
The effective date of registration is the date you realised, not the date your turnover went over the threshold.
· The business VAT taxable turnover exceeded £85,000 over the last 12 months
You must register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold.
The effective date is still the date HMRC will expect VAT to be paid from if you register late. Subject to the duration of your late registration and the amount owed you may be subject to a penalty fine for HMRC.
Depending on the kinds of goods or services you sell and where you sell them or if you purchase a VAT registered business you might need to register for VAT.
Once you register for VAT you will be sent a VAT registration certificate which will provide the following information:
· VAT Number
· When to submit your first VAT Return and payment.
· ‘Effective date of registration’ this could be the date you went over the £85,000 threshold or the date you asked to register if it was voluntary.
Registering for VAT comes with certain responsibilities, it also allows you to reclaim VAT paid on certain purchases within a set time limit before you registered.
For purchases made prior to registration the time limits from your date of registration are as follows:
· 4 years for goods you still have, or that were used to make other goods you still have
· 6 months for services
The reclaim for VAT relates only on purchases for the business now registered for VAT, in that they relate to your ‘business purpose’ and VAT taxable goods or services that you supply.
The VAT reclaim should be done on your first VAT return (included on Box 4 figure), you will also need to keep records such as:
· Invoices and receipts
· Description and purchase dates
· Information about how they relate to your business now
The following applies from your effective date of registration:
· You must charge the right amount of VAT
· Pay any VAT due to HMRC
· Submit VAT returns following the rules for ‘Making Tax Digital for VAT’
· Keep VAT records and a VAT account
Until you receive your VAT number you are unable to charge or show VAT on invoices, but you will still have to pay the VAT to HMRC for this period.
During the wait for the VAT number advise your customers that you have registered for VAT and increase your prices accordingly. On receipt of the VAT number add this to you invoices and reissue the invoices showing the VAT.
HOW TO REGISTER FOR VAT
You can register online this is available for most businesses including partnerships and a group of companies registering under one VAT number. Registering online creates a VAT online account (Government Gateway account) which you use to submit any VAT returns to HMRC. VAT returns can be submitted by an appointed accountant or agent.
For the following reasons you will not be able to register online but can register by post via a VAT1 form.
· Appling for registration exception
This is if your taxable turnover temporarily went over the threshold of £85,000 but if you believe in the next 12 months it will not go over the deregistration threshold of £83,000.
· Joining the Agricultural Flat Rate Scheme
This is an alternative to VAT registration for farmers.
Generally, your VAT registration certificate should arrive within 30 days, if you have applied online it will be sent to your VAT online account. It will arrive via the post if your appointed accountant or agent applied on your behalf or you are unable to register online.
If your company deals with European countries usually you only need to register for VAT where you are based. If your supplying digital services like broadcasting, telecommunications services, video on demand, downloadable music, games, apps, software and e-books the rules are different if in a calendar year (January to December) sales go over £8,818 before VAT.
If this happens even if your taxable turnover is below the VAT registration threshold you will need to either:
· Register in each country you trade with where you’re suppling digital services.
· Sign up for the VAT MOSS service