Our experienced VAT team can give you the VAT advice you have been looking for to arrange the registration for your organisation. Embarking upon a new business venture may also make you eligible for savings on VAT expenses, which is why professional guidance is necessary for the success of your company.
VAT is a tax on consumer expenditure and is ultimately paid by the final customer. Most business transactions involve the supply of goods or services and VAT is payable if they are made:
a) in the United Kingdom b) by a taxable person c) in the course or furtherance of business and are not specifically exempted or zero-rated
VAT is collected by HM Revenue & Customs and is normally payable quarterly.
Registration
There are two different types of registration - compulsory and voluntary:
A. Compulsory A person who makes taxable supplies becomes liable to be registered if:
a) At the end of any month, the value of his taxable supplies in the period of one year then ending has exceeded the registration limit, which is £70,000 from 01 April 2010.
b) At any time, there are reasonable grounds for believing that the value of his taxable supplies in the next 30 days will exceed the £70,000 limit.
c) If, where a business carried on by a taxable person is transferred as a going concern, the taxable supplies for the twelve months prior to the transfer exceed £70,000.
In the most common situation, i.e. (i) above, the person must notify H M Revenue & Customs of the liability within 30 days of the end of the month in which the value of the taxable supplies first exceeded £70,000. If, for example, the value of the taxable supplies first exceeded £70,000 in the twelve months to 31 March, then H M Revenue & Customs must be notified by 30 April and VAT registration would commence on 1 May.
B. Voluntary In certain circumstances, it is possible to register on a voluntary basis for VAT even though the value of taxable supplies may never exceed £70,000. This is normally only beneficial where the majority of supplies are being made to customers who are themselves VAT registered, e.g. it would not be beneficial for a domestic painter with taxable supplies of £30,000 to be registered, whereas it may be beneficial for a commercial or industrial painter with the same level of supplies.
The other situation in which a voluntary registration might be beneficial is where the supplies are all zero-rated and no VAT is charged on the transaction. All VAT suffered by the trader on expenses can be reclaimed from H M Revenue & Customs.
In summary, the advantages and disadvantages of a voluntary registration are as follows:
Advantages
• enables input VAT suffered to be reclaimed;
• a VAT number can give the impression that a business is larger than it actually is which sometimes can increase the possibility of obtaining work.
Disadvantages
• the requirement to prepare VAT returns on a quarterly basis and to submit them and if applicable pay over the VAT due within one month of the quarter end - is the amount of work involved worth it for the amount of input VAT that can be reclaimed?
• H M Revenue & Customs may visit the business about every five years to ensure that VAT is being properly accounted for. There may be penalties for incorrect returns.
Taxable Persons and Supplies
a) Taxable Persons
It should always be remembered that it is a person that is registered for VAT and not a business. If a person has two separate different businesses, both with taxable supplies of £40,000, then that person will be required to be registered for VAT and account for VAT at the appropriate rate on the total supplies of £80,000.
It is possible to mitigate the effect of VAT by having one of the businesses operated by a limited company or by a partnership with a relative, but professional advice needs to be taken since H M Revenue & Customs have the power to still treat the two businesses as one if strict criteria are not met.
b) Taxable Supplies
Taxable supplies are all supplies made by a business either to a third party or to the trader himself (goods for own use), which are not exempt supplies. Taxable supplies therefore include zero-rated supplies.
The major categories of exempt supplies are:
• Land (but not buildings) • Insurance • Postal services • Betting, gaming and lotteries • Finance • Education • Health and welfare
It is important that at the outset of a business, a trader establishes the VAT status of any supplies being made to avoid mistakes, e.g. the services of a physiotherapist are exempt, whilst the services of an acupuncturist are standard rated.
At Taxless, we have developed a VAT Checklist, so that you may be able to assess your business on whether becoming VAT registered is applicable, or if you are complying with VAT regulations.
The simple use of our trained accountants for VAT services will eliminate mistakes, cut down on excess costs, and ensure your business success for the future.
