How To Register A Business For VAT In The UK

VAT Accountant United Kingdom

Congratulations! You have taken action and decided to start your own business. One of the biggest hurdles people face is having the courage to back themselves and take that initial leap of faith into the wonderful world of running your own business.

One thing you will quickly come to terms with is the amount of administration involved, including needing to be compliant with local tax laws to ensure you do not incur costly fines and penalties.

Value Added Tax, or VAT, is one tax that HMRC requires business owners to manage. This blog will tell you all you need to know about VAT, including how to register a business for VAT in the UK.

What Is VAT?

VAT stands for Value Added Tax. It is applied to goods and services supplied in the UK at the standard rate of 20%. Effectively the final consumer is the one that pays the VAT, however, it requires businesses to submit the tax collected from consumers to HMRC.

Many business owners complain about the administrative burden it places on them having to manage VAT payments. Rightly so because the truth is that VAT is complicated. Fortunately over the last 5 years it has become a little easier through the use of cloud accounting software but still takes up more time than it should.

When Do You Need To Register A Business For VAT In The UK

You need to register a business for VAT in the UK once the annual turnover is greater than £85,000 in a 12 month period. Once you register for VAT, HMRC will provide you with a 9 digit VAT registration number. It will start with the prefix GB and then have 9 numbers after it.

To register your business for VAT in the UK visit the GOV.UK website here. If you find it a little bit confusing or would like some help then please contact us here and we can do it all for you for £49.95. Book a free 30 minute online consultation to discuss your business needs with our qualified tax Accountants here.

How Do You Submit Your Business VAT Return In The UK?

You can submit your Business VAT online through integrated cloud accounting software such as Zero, Quickbooks and Sage. There are many other software providers but these are the most common ways for small businesses to submit their business VAT returns online to HMRC.

What Is The VAT Rate In The UK?

The VAT rate in UK is 20% for most goods and services. Some items are exempt from VAT, meaning VAT is not charged on that specific good or service. An example of a VAT exempt product is insurance. An example of a service is which is exempt from VAT is education and training.

There are also a number of goods and services with a reduced rate of VAT such as Children’s car seats, booster seats and booster cushions. These only attract a 5% VAT charge.

We recommend that your business becomes familiar with the VAT rates to ensure you remain compliant and are charging and submitting the correct amount of VAT to HMRC. You can view the full list here.

How To Calculate The Amount Of VAT Your Business Owes To HMRC

In its simplest form, you only owe 20% of the value you add to a product or service from the time you purchase it to the time you sell it to your customer.

Here is a worked example of how to calculate VAT owed to HMRC. Say you own a retail wine business. You buy a bottle of wine from a wholesaler for £7. The wholesaler will charge you the £7 plus 20% VAT which means you end up paying them £8.40 including the VAT. You now have a credit with HMRC for VAT paid of £1.40. You sell the same bottle of wine in your store to a customer for £14.40 which includes £2.40 (20% of £12) VAT. As a result of the above you would need to pay the difference between the £1.40 which you have in credit and the £2.40 which was collected on the final sale. A total of £1 (£2.40 minus £1.40) would need to be paid to HMRC on your next VAT return.

That is why it is called Value Added Tax. You only pay the tax on the incremental value your business has added. This may seam simple but when you have hundreds, if not thousands of transactions going through your ledger each month it is very hard to track unless you use online VAT software to manage it.