If you’re running a small business, it is important to understand the requirements for registering for VAT or Value Added Tax (or sales tax).
This tax is a consumption tax that’s added to the price of goods and services.
If your business earns over a certain threshold, you may be required to register for VAT, although there are some exceptions and exemptions.
In this post, we’ll go through the basics of VAT and help you determine if you need to register for it.
What is VAT?
Value Added Tax (VAT) is a tax that’s charged on most goods and services.
It’s a consumption tax, which means that the amount you pay depends on the value of the item or service you’re purchasing.
VAT is collected by businesses on behalf of the government, and they must then pay this tax over to HMRC.
When do I need to register for VAT?
If your business’s taxable income exceeds the current threshold of £85,000 in a 12-month period, you are required to register for VAT.
This means that you’ll need to charge VAT on your goods and services and pay it over to HMRC.
However, if your taxable income is below the threshold, you may choose to voluntarily register for VAT.
This can be beneficial if you’re purchasing a lot of goods or services that have VAT added, as you’ll be able to claim back any VAT that you pay
What are the benefits of registering for VAT?
Registering for VAT can benefit your business in a number of ways.
Firstly, it can give your business a more professional image, as it shows that you’re a registered, tax-compliant business.
Secondly, it allows you to claim back any VAT that you pay on goods and services purchased by your business, which can save you money in the long run.
Additionally, by registering for VAT, you can expand your business to work with other VAT-registered businesses within the EU, which can open up new opportunities.
What are the exemptions from registering for VAT?
There are some exemptions from registering for VAT.
For example, if your business earns below the threshold of £85,000 in a 12-month period, you’re not required to register for VAT.
Additionally, some goods and services are exempt from VAT, such as education and healthcare.
However, it’s important to note that just because your business is exempt from VAT doesn’t mean that you can’t register if you want to claim back any VAT that you pay.
In conclusion, registering for VAT is an important part of running a small business.
If your taxable income exceeds the threshold, you’re required to register for VAT, and there are many benefits to doing so.
However, if your income is below the threshold, you may still want to consider voluntarily registering for VAT to benefit from claiming back any VAT you pay.
It’s important to stay informed about the VAT rules and regulations in the UK to ensure that your business remains tax-compliant.