Value Added Tax, or VAT as it’s commonly referred to, is a generally compulsory tax on most products and services. It is charged as a percentage of the total price and is collected fractionally. But what does it mean to be VAT registered in the UK? Let’s take a closer look.
What does VAT registered mean?
Being a VAT registered business means that if your annual turnover (not per calendar year but over the last 12 months starting at any point in time) is at or above the £85,000 threshold, you can charge your customers VAT on products and services. This percentage is currently 20% of the total price in the UK.
You will have certain responsibilities when you register for VAT and these include:
- Charging VAT
- Paying VAT to HMRC
- Submitting VAT returns, and
- Keeping your VAT accounts in order
What are the benefits?
Some of the benefits of being VAT registered include:
- You can reclaim VAT on expenses incurred by your business. For example, purchasing broadband, laptops, equipment and more.
- If you’re nearing the £85,000 threshold as your business grows and you register for VAT, you’ll save yourself the hassle and time of doing this at some stage in the future.
What are the disadvantages?
As with most things, there are some disadvantages. Here’s what to look out for when dealing with VAT:
- You essentially pass on a higher price to your customers, affecting your competitiveness
- You will be expected to file VAT returns, keep VAT invoices and receipts and generally maintain up-to-date VAT accounting records.
What is a VAT registration number?
A VAT registration number is a number that will be issued to you as a VAT registered business and it will appear on your VAT returns and other documentation related to the collection and charging of VAT.
How to register for VAT
Prior to registering for VAT, you’ll generally need:
- Your unique tax reference
- The bank account details of your business
- Your company number
- Your company’s registered address
After registering, you will receive a VAT registration certificate also known as VAT4, which will contain the following information:
- Your VAT registration number
- The date for submitting your first VAT return and payment
- Your “effective date of registration”
Finally, you need to cite your VAT registration number on any receipt or invoice when you apply VAT to goods sold or services rendered.
Registering for VAT is not necessary if you’re below the £85,000 threshold but if you see that your business is growing and expanding, it could be something worthwhile doing now and saving yourself the hassle later. What’s more is that if you’re over the £85,000 threshold, this is a legal requirement and obligation that you need to adhere to. In sum, the question “what is VAT registered?” refers to cases where businesses with an annual threshold of £85,000 or over are required to file and submit VAT returns.
Although this may mean charging end-users higher prices, keep in mind that the 20% VAT is not applicable to all products and services, although it is applicable to most.