How to register for VAT online: A straightforward guide

Published · 8 min read

As your business grows, one of the things you need to be aware of is Value Added Tax. Understanding VAT and what it means for your business, as well as being clear on the VAT threshold, is important. If VAT registration is on the cards for your business, you can register for VAT online.

Read this article to learn about VAT and how to register for it, discover the different VAT schemes that are available and understand how Making Tax Digital will make an impact from 1 April 2019.

What is VAT?

VAT is a “consumption tax” – a tax on what people consume, in other words goods and services. it’s an indirect tax because businesses that are VAT registered and whose taxable turnover is in excess of the VAT threshold (currently £85,000) collect it on behalf of the government.

Since January 2011, the VAT rate in the UK has been 20% for most goods and services. There are some exceptions: children’s clothing and footwear, for example, attract a zero rate for VAT. The VAT threshold can change to take into account factors such as inflation but the current level of £85,000 is expected to remain in force until 2020.

When does your business need to register for VAT?

If you’ve found yourself asking the question “Should I become VAT registered?”, here’s what you need to know. If the turnover of your business has reached £85,000 or more over the past 12 months, or if it’s likely to do so in the 2018/19 tax year, you’ll be required to register for VAT.

Failing to register for VAT online – or by using a VAT1 form – when your turnover grows beyond a certain amount could result in a hefty fine from HMRC.

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Advantages of being VAT registered

One key advantage of being VAT registered is the ability to recover VAT incurred during startup costs.

Say you’re opening a café or starting a professional services company and you need to buy chairs, tables, computers and stationery among other items. You can reclaim the VAT element of this expenditure from HMRC and pump that cash into the business before waiting for its turnover to exceed £85,000.

As well as this practical point, many businesses would prefer their clients, suppliers and competitors don’t know how big they are.

If you’re not VAT registered, they will know your turnover is less than £85,000. Among the benefits of VAT registration is the image of gravitas and professionalism that it develops for your company. On the topic of VAT, being able to say: “Am I VAT registered? Yes, of course,” makes it clear you’re a “proper” business in the eyes of many customers and suppliers.

Disadvantages of being VAT registered

Being VAT registered does have certain disadvantages. For instance, every quarter you have to send your VAT returns to HMRC. Some businesses find this extra administration inconvenient, while others like the fact that it forces them to keep their books up to date on a regular basis rather than having to do everything at the financial year end.

You’ll also have to charge your customers VAT. If they can reclaim this – as most businesses can – they won’t have a problem.

However, if you’re mainly selling to consumers because you’re a retailer or a restaurant, for instance, you’ll find those consumers can’t reclaim the VAT and so you’ll either have to put up your prices or swallow the extra cost of the VAT that you’re being charged yourself.

There are a number of VAT schemes to consider
There are a number of VAT schemes to consider

VAT schemes to choose from

There are a number of different categories of VAT that you should investigate before you register for VAT online. Here are some VAT schemes to consider.

Annual Accounting VAT Scheme

With the Annual Accounting VAT Scheme, you don’t complete quarterly returns. Instead, you report and pay annually with this arrangement, which is only available to businesses with an annual turnover of less than £1.35m.

Some businesses make this annual VAT payment on or about the same date that they file their corporation tax, for the sake of simplicity. With the Annual Accounting VAT Scheme, once you’ve completed your VAT return you make interim payments every quarter towards the total annual amount that you estimate you’ll be liable for.

Obviously, when your final VAT bill is calculated you might find you’ve overpaid during the year, in which case you’ll get a refund. On the other hand, you may discover you haven’t paid enough. In that case, you’ll have to make up the difference.

VAT Flat Rate Scheme

The VAT Flat Rate Scheme is one of the best known and most widely used VAT schemes. This is most relevant to companies that spend a small amount on goods and raw materials, so it’s most popular among service providers. You can apply when you register for VAT online.

With the Flat Rate Scheme, instead of deducting VAT on its inputs (in other words, what it buys) from the VAT on its outputs (what it sells), a company can benefit from a more simplified process.

Under this arrangement, companies charge the normal VAT rate of 20% but they pay a lower rate on to HMRC. For instance, a shop selling clothing for adults would charge £120 for a shirt. This would include VAT of £20 but, given the flat rate percentage for a clothes shop is 7.5%, it would pay just 7.5% in VAT or £9 on the £120 shirt.

Set against the obvious advantage that this offers is the fact that businesses using the Flat Rate Scheme can’t claim back the VAT that their suppliers charge them. The theory here is that the government still takes roughly the right proportion of VAT but for businesses using the scheme, doing their VAT is a simpler and less time-consuming experience.

The only complication is that different sectors attract different rates of VAT. While the Flat Rate Scheme rate on adult clothes is 7.5%, for film processing it’s 11% and for secretarial services it’s 13%, while those offering computer repair services must charge 10.5%. The HMRC calculator can help you find the rate appropriate for you.

In addition to this, changes to the VAT scheme introduced in 2016 created a category called “limited cost traders”. These businesses are labour-intensive ones – essentially those that spend less than 2% of their sales on goods (but not services) in an accounting period.

To calculate this amount, companies cannot include purchases of capital goods (for example new equipment), food and drink (this might be lunch and refreshments for staff) or vehicles or parts for them unless they’re actually running a business that hires out vehicles.

These changes mainly affect contractors and consultants, or anyone who is doing work but whose raw materials are provided by the main contractor rather than themselves.

VAT Cash Accounting Scheme

With the VAT Cash Accounting Scheme, a company only pays VAT once it has received payment from its customers. This is particularly useful for small businesses that are concerned about cash flow. On the other hand, unlike the standard VAT scheme, you can only reclaim the VAT paid on purchases once you have paid your suppliers.

To join the scheme, your VAT taxable turnover must be £1.35m or less. There are other limitations with this arrangement that you should ask your accountant or financial adviser about if you have one. You could also consult the HMRC register for VAT. You can leave the scheme at the end of any VAT quarter.

Small business guide to VAT

Managing VAT can be a pain for many small businesses - but it doesn't have to be! Everything you need to register and submit VAT and staying compliant is right here.

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How to register for VAT online

Are you at the stage with your business where you’re thinking “I need to register my business with HMRC for VAT”? If so, the process to register your business for VAT is relatively simple.

You can register for VAT online, although it’s also possible to use a VAT1 paper form to register if you need to.

One thing worth noting is it can take around a month or even longer to process a VAT application. This is a straightforward process, though, and is done on the HMRC website (when registering online). Here are the steps you’ll need to take.

If you don’t have a Government Gateway ID:

  • Go to the Register for HMRC taxes page, select the appropriate option then click the “next” button to go through the pages.
  • On the final page, select “Create an account for me”.
  • Enter your details to create your Government Gateway ID. Keep your user ID and password in a safe place as you’ll need to refer to them regularly.
  • On the sign in page, enter your Government Gateway details.
  • Once logged in, scroll down to the “Get another tax, duty or scheme” section of the page and click the button underneath this.
  • Select VAT and follow the final steps to complete your VAT registration application.

If you have a Government Gateway ID:

  • Go to the Register for HMRC taxes page, select the appropriate option then click the “next” button to go through the pages.
  • On the final page, select “I have an account – login”.
  • On the sign in page, enter your Government Gateway details.
  • Once logged in, scroll down to the “Get another tax, duty or scheme” section of the page and click the button underneath this.
  • Select VAT and follow the final steps to complete your VAT registration application.

Essential documents for VAT registration

To compete your VAT registration, you’ll have to supply your business contact details, bank account, Unique Tax Reference number, details of your turnover and the nature of your business.

VAT online account and VAT certificate

  • Once you’ve registered for VAT, the system will create a VAT online account for you, sometimes known as a Government Gateway account. This is where your VAT certificate will be sent – it takes up to 30 days for you to receive it.
  • The VAT certificate confirms your VAT number and tells you when you will need to submit your first VAT return and payment.
  • You’re then ready to submit your VAT returns on a quarterly basis. You’ll usually receive automatic reminders from VAT about when to do this.

It’s important to note that you should start your VAT accounting not from the date at which you receive your VAT number but the date you were obliged to register for VAT because you hit the £85,000 threshold or the time you decided to register on a voluntary basis.

Operating within the VAT system but without a VAT number that you can quote to clients when invoicing them can obviously be difficult. You can’t charge VAT.

However, HMRC suggests you increase the amount on your invoices by 20% (the current level of VAT) and explain to clients that you’ll reissue the invoices with the VATable amount once you receive your VAT number.

If you have an accountant or a business adviser, you can ask them for help on how to become VAT registered and which scheme to choose.

How to check if a company is VAT registered

Whether you’ve decided that it’s right for you to register for VAT or not, you’ll probably find yourself working with other businesses that are VAT registered. Suppliers may well be sending you invoices with VAT added to the fee that they’re charging you.

Business owners only occasionally ask how to check if a company is VAT registered but they should do so more often. It’s a quick and simple process and can ensure you don’t find yourself paying out more than is required to a supplier who is either incorrectly or even fraudulently charging VAT.

If you’re wondering how to check if a company is VAT registered, there are a number of things you can do. The simplest is to ring the HMRC VAT helpline (0300 200 3700).

Another route – and one that is useful if you want to check on a business that’s based in the European Union – is to visit the European Commission’s VAT number validation site.

What Making Tax Digital means for VAT

VAT administration is going through a major change. HMRC describes its new Making Tax Digital initiative as “a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions”.

Under the system, every person and business can now get access to their own individual digital tax account. The benefits, according to HMRC, will include the fact that it won’t have to ask businesses for information that it already holds or can get from organisations such as banks or other government departments.

Companies will also know how much tax they’ll have to pay without waiting until the end of the year and, from 2020, it’s intended that most businesses and individuals will be able to see all their tax liabilities and entitlements in one place.

Following concerns about the scale of these changes, the government announced that Making Tax Digital for VAT will be rolled out in stages, starting from 1 April 2019 and involving VAT-registered companies with a turnover of more than £85,000.

Final thoughts on registering for VAT

Becoming VAT registered and taking this tax into account when buying and selling represents a milestone in the growth of many companies.

Taking advice on which scheme to sign up to and getting effective systems in place in plenty of time to handle the extra calculations and administration can make it not just a painless experience but a positive one.

Small business guide to VAT

Managing VAT can be a pain for many small businesses - but it doesn't have to be! Everything you need to register and submit VAT and staying compliant is right here.

Get your free guide

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