• Should I be VAT Registered

Should I be VAT Registered

Navigating VAT (Value Added Tax) registration can be confusing for small business owners, freelancers, and startups. Here’s what you need to know to decide whether you should register.

You must register for VAT with HMRC if:

• Your VAT taxable turnover exceeds £90,000 in any rolling 12-month period.
• You expect your turnover to exceed £90,000 in the next 30 days.

This threshold applies to standard-rated, reduced-rated, and zero-rated goods and services. It excludes VAT-exempt items like insurance, health services, and education. [www.gov.uk]

🧾 What Counts Toward Taxable Turnover?

Include:

• Standard, reduced, and zero-rated sales
• Goods/services used personally
• Reverse-charged services from abroad
• Bartered or gifted items

Exclude:

• VAT-exempt items
• Outside-the-scope income (e.g., dividends)

What Scheme Should I Be on

Choosing the right VAT scheme can make a big difference to your business’s cash flow, admin workload, and even how much VAT you pay. Here’s a breakdown of the main schemes available in the UK and how to decide which one suits your business best.

🔍 Overview of VAT Schemes

The UK offers several VAT schemes to suit different business sizes and sectors:

Scheme	Best For	Turnover Limit	Key Benefit
Standard VAT Accounting	Most businesses	No limit	Full VAT reclaim
Flat Rate Scheme (FRS)	Small service-based businesses	≤ £150,000 (excl. VAT)	Simplified VAT reporting
Cash Accounting Scheme	Businesses with late-paying customers	≤ £1.35 million	Pay VAT only when paid
Annual Accounting Scheme	Businesses wanting fewer returns	≤ £1.35 million	One VAT return per year
Retail & Margin Schemes	Retailers & second-hand goods sellers	Varies	Simplified VAT on sales

🧾 1. Standard VAT Accounting Scheme

How it works:

• Charge VAT on sales (output VAT)
• Reclaim VAT on purchases (input VAT)
• Submit quarterly VAT returns

Pros:

• Full VAT recovery
• Suitable for businesses with high expenses

Cons:

• VAT due even if invoices aren’t paid
• More admin and record-keeping [www.accoun…smcr.co.uk]

💼 2. Flat Rate Scheme (FRS)

How it works:

• Pay a fixed percentage of VAT-inclusive turnover to HMRC
• No need to track VAT on purchases (except capital assets over £2,000)

Eligibility:

• VAT taxable turnover ≤ £150,000 (excl. VAT)
• Must leave if turnover exceeds £230,000 (incl. VAT)

Pros:

• Simplifies VAT reporting
• 1% discount in first year

Cons:

• Can’t reclaim most input VAT
• Limited cost traders pay a higher rate (16.5%)

💰 3. Cash Accounting Scheme

How it works:

• Pay VAT only when customers pay you
• Reclaim VAT only when you pay suppliers

Eligibility:

• VAT taxable turnover ≤ £1.35 million
• Must leave if turnover exceeds £1.6 million
• Not available if you’re on the Flat Rate Scheme or have VAT offences [www.gov.uk]

Pros:

• Improves cash flow
• No VAT on unpaid invoices

Cons:

• Can’t reclaim VAT until suppliers are paid
• Not ideal for businesses with upfront costs

📆 4. Annual Accounting Scheme

How it works:

• Make advance VAT payments based on previous year
• Submit one VAT return annually

Eligibility:

• VAT taxable turnover ≤ £1.35 million

Pros:

• Less admin
• Easier budgeting

Cons:

Delayed VAT reclaim

Less flexibility if turnover fluctuates

What can I claim for

Office Essentials

• Computers, printers, desks, chairs
• Broadband and phone services
• Stationery and office supplies

         Travel Expenses

• Parking fees
• Motorway tolls
• Car hire (50% VAT reclaim if used for mixed purposes)
• Fuel (with mileage logs)

       Professional Services

• Accountants, consultants, legal fees
• Software subscriptions and tools

       Utilities

• Electricity, gas, water (if used in business premises or proportionally at home) [www.gov.uk]

       Team Entertainment

• Staff parties, team lunches, reward events — only if open to all employees

      Marketing & Advertising

• Website hosting
• Promotional materials
• Online ads and campaigns

 Vehicles

• Commercial vehicles used solely for business
• Cars used as taxis, for driving instruction, or self-drive hire
• Used cars (only if VAT is shown on invoice) [www.gov.uk]
•  

❌ Expenses You Cannot Claim VAT On

• Client entertainment (e.g. meals, golf days)
• Personal purchases (even if used during work)
• Commuting costs
• Non-VAT invoices or receipts
• Flat Rate Scheme purchases (except capital assets over £2,000) [www.gov.uk]

⏳ Claiming VAT on Pre-Registration Expenses

You can reclaim VAT on purchases made before you registered, if:

• Goods were bought within 4 years and are still in use
• Services were bought within 6 months
• They were used for your VAT-taxable business [www.gov.uk]

📋 Tips for Accurate VAT Claims

• Keep valid VAT invoices for every claim
• Use accounting software to track expenses
• Apply the correct business-use percentage
• Avoid mixing personal and business costs

File VAT returns on time to avoid penalties

How do I prepare a VAT Return

How do I prepare a VAT Return

If you are preparing this on Microsoft Excel then you need to analyse all your sales and purchases out separating a column for NET, VAT TOTAL

This can be submitted using bridging software where a digital link is available so it can be submitted to HM Revenue & Customs

If you are using software, then you will need to enter all sales and purchases into the software, and it will calculate this for you, it can be submitted to HM Revenue & Customs

What bookkeeping software should I use

There is no right or wrong software to use it is much more what software works best for your business and what you prefer one such as, Xero, Quickbooks, Sage, FreeAgent.

What happens if HMRC investigate my return

HM Revenue & Customs VAT department may decide to investigate a VAT returns from time to time as this is normal procedure.

What they are looking for is to make sure the return are (complete and accurate) making sure there are no errors in them like claiming personal expenses.

If you submit a VAT return and are due money back on the first return this will trigger an investigation, and they will let you know what information they need. Once this has been complete the refund will be issued.

You can take out investigation insurance and if this happens it will cover the cost of the investigation if some else handles this for you like an accountant

Why won’t HMRC pay my VAT Rebate

Why won’t HMRC pay my VAT Rebate

A notice will be sent to you notifying that they are investigating the VAT return only when they are satisfied that there are no errors on the return will they repay the rebate.

This will then be paid to your bank and usually takes up to 3 days

VAT department work very different to income tax, on your tax return they will pay the refund and if they think it contains errors, they investigate this after, VAT is done the other way round.

Do I have to be VAT Registered

🆓 Voluntary VAT Registration

Even if you’re below the threshold, you can choose to register voluntarily. This might be beneficial if:

• You want to reclaim VAT on business expenses.
• You deal mostly with VAT-registered clients.
• You want to boost credibility in Business-to-Business markets.
• It can make your business look larger than it is.

But beware: VAT registration adds admin tasks like quarterly returns and record-keeping.

❌ When You Don’t Need to Register

You do not need to register if:

• You only sell VAT-exempt goods or services (e.g., insurance, education, health care)
• Your turnover is below the threshold, and you don’t want to reclaim VAT
• You’re a hobbyist or micro-business with minimal sales

How do I register for VAT

How do I register for VAT

🧠 Step-by-Step: How to Register Online

1. Go to GOV.UK
   Visit Register for VAT on GOV.UK [www.gov.uk]
2. Sign in or create a Government Gateway account
   You’ll need a user ID and password. You can create one during the process.
3. Complete the online VAT registration form
   Provide business details, turnover estimates, and other required information.
4. Save and return later if needed
   You don’t have to complete the form in one go.
5. Submit your application
   HMRC will review and issue your VAT registration number.

During the registration process they will ask question about business structure, business owners, industry, sales or turnover, what scheme you want use.

📬 What Happens After You Register?

• You’ll receive a VAT registration number
• You must start charging VAT on invoices
• You’ll need to submit VAT returns regularly
• You must comply with Making Tax Digital rules

Making Tax Digital requires you to submit your VAT return online so you will need away of doing this software has this capability, the only other way is to use bridging software with an API connection (digital link)