Should I Register For VAT?
One of the common questions we are asked is ‘Should I Register For VAT?’ or ‘What are the benefits/advantages of being VAT registered?’. This page explains:
- What is VAT?
- Should I be VAT registered?
- Advantages and Disadvantage of VAT registration
- What are the different VAT schemes available?
- How to apply for VAT Registration
What Is VAT?
VAT (or Value Added Tax) is a charge made on the sale of goods and services by VAT Registered companies in the UK. The current standard VAT rate in the UK is 20%. By being VAT registered these companies collect VAT on behalf of the HMRC. In doing so they are also entitled to claim back the VAT they have been charged themselves on products and services.
Should I Be VAT Registered?
If throughout the course of a rolling 12 month period your turnover exceeds the VAT registration threshold (which is currently set at £83,000), legally you must be VAT registered.
There are also other benefits of being VAT registered, even if your turnover is less than the VAT threshold.
Advantages Of Being VAT Registered
- You are able to reclaim VAT that you are charged by other businesses for goods and services. This is particularly beneficial if your business purchases a large quantity of materials.
- Being VAT Registered makes your business look larger and suggests your annual turnover is greater than £83,000. This can help when you are competing with other businesses that are not VAT registered.
- Your business customers, if VAT registered themselves, can claim back the VAT you charge, meaning there is no net change in the amount they pay.
- Your VAT number can be displayed on invoices/websites, which can make your company look more appealing to potential customers.
Disadvantages Of Being VAT Registered
- Customers that are not VAT registered may be put off using your products or services due to the additional 20% VAT charge, compared to using a non-VAT registered company.
- Your business needs to maintain clear records throughout a rolling 12 month period and file a VAT return every quarter.
Example VAT Calculation
| Services provided to customers in 3 month period | £15,000 |
| VAT charged on services provided (20%) | £3,000 |
| Products and Services purchased during the same 3 month period | £5,000 |
| VAT on products/services purchased (20%) | £1,000 |
| Net amount of VAT paid to HMRC | £2,000 |
VAT Schemes
There are a range of VAT Schemes available depending upon your individual company circumstances.
Standard (or Accrual) Scheme
The standard scheme is based upon the date when your invoices are sent. You will therefore need to pay the HMRC by the end of the quarter in which you send the invoice. This can sometimes cause cashflow problems for small businesses if payments are not received quickly by customers.
Cash Accounting Scheme
The Cash Accounting Scheme is based upon the date when your invoices are paid. This scheme is better suited for small businesses because VAT is owed to the HMRC at the end of the quarter in which a business pays for a good or service. This ensures the money is in your account ready for when your VAT is payable to HMRC.
Flat Rate Scheme
The net amount of VAT you pay to HMRC is usually the difference between the VAT that you charge customers and the VAT that you pay on your own purchases.
The Flat Rate Scheme gives you a fixed rate of VAT that you pay to HMRC and is dependent upon your industry (You can find a list of VAT rates below).
Flat Rate VAT Rates for Businesses
| Type of business | Current VAT flat rate (%) |
|---|---|
| Accountancy or book-keeping | 14.5 |
| Advertising | 11 |
| Agricultural services | 11 |
| Any other activity not listed elsewhere | 12 |
| Architect, civil and structural engineer or surveyor | 14.5 |
| Boarding or care of animals | 12 |
| Business services not listed elsewhere | 12 |
| Catering services including restaurants and takeaways | 12.5 |
| Computer and IT consultancy or data processing | 14.5 |
| Computer repair services | 10.5 |
| Entertainment or journalism | 12.5 |
| Estate agency or property management services | 12 |
| Farming or agriculture not listed elsewhere | 6.5 |
| Film, radio, television or video production | 13 |
| Financial services | 13.5 |
| Forestry or fishing | 10.5 |
| General building or construction services* | 9.5 |
| Hairdressing or other beauty treatment services | 13 |
| Hiring or renting goods | 9.5 |
| Hotel or accommodation | 10.5 |
| Investigation or security | 12 |
| Labour-only building or construction services* | 14.5 |
| Laundry or dry-cleaning services | 12 |
| Lawyer or legal services | 14.5 |
| Library, archive, museum or other cultural activity | 9.5 |
| Management consultancy | 14 |
| Manufacturing fabricated metal products | 10.5 |
| Manufacturing food | 9 |
| Manufacturing not listed elsewhere | 9.5 |
| Manufacturing yarn, textiles or clothing | 9 |
| Membership organisation | 8 |
| Mining or quarrying | 10 |
| Packaging | 9 |
| Photography | 11 |
| Post offices | 5 |
| Printing | 8.5 |
| Publishing | 11 |
| Pubs | 6.5 |
| Real estate activity not listed elsewhere | 14 |
| Repairing personal or household goods | 10 |
| Repairing vehicles | 8.5 |
| Retailing food, confectionery, tobacco, newspapers or children’s clothing | 4 |
| Retailing pharmaceuticals, medical goods, cosmetics or toiletries | 8 |
| Retailing not listed elsewhere | 7.5 |
| Retailing vehicles or fuel | 6.5 |
| Secretarial services | 13 |
| Social work | 11 |
| Sport or recreation | 8.5 |
| Transport or storage, including couriers, freight, removals and taxis | 10 |
| Travel agency | 10.5 |
| Veterinary medicine | 11 |
| Wholesaling agricultural products | 8 |
| Wholesaling food | 7.5 |
| Wholesaling not listed elsewhere | 8.5 |
You keep the difference between what you charge customers and what you pay HMRC. However, unlike the other schemes you are unable to reclaim VAT on your purchases. The Flat Rate Scheme is also not as beneficial to businesses which don’t charge VAT on all of their sales, e.g. builders contracting new houses.
To join the Flat Rate Scheme your annual turnover must be less than £150,000 (excluding VAT). There is also a reduction of 1% for new VAT registrants.
It’s therefore important to understand your business and calculate whether there is a financial benefit to using the Flat Rate Scheme.
Flat Rate VAT Example
You are a photography business and therefore your flat rate is 11% (see table above)
| Net amount charged to client | £1,000 |
| VAT Charged (20%) | £200 |
| Gross Amount | £1,200 |
| Flat Rate VAT payable on gross (11%) | £132 |
| Net different in VAT (Profit) | £68 |
Should I register for Flat Rate VAT?
The question on whether to register for Flat Rate VAT therefore depends upon two factors:
- The net difference in VAT if registered on the Flat Rate Scheme (as calculated above)
- The amount of VAT you could reclaim if registered on the Standard or Cash VAT scheme
If the Flat Rate VAT amount (1) is more than the Standard VAT amount (2) then there could be a financial benefit to joining the Flat Rate VAT Scheme.
How to register for VAT
You can find more information on VAT registration and apply for VAT registration Online via the HMRC website.
Need help with VAT registration?
As explained above the decision to become VAT registered requires you to have a good understanding of your business finances. If you are uncertain whether you should be VAT registered, or which VAT scheme is best for you, then H&H Accountants are here to help. We offer a full VAT Service which will ensure you collect the right amounts of VAT and make the appropriate payments to the HMRC. For further information on a range of important dates, take a look at our Tax Calendar.
Simply get in touch now by calling us on 01823 325610 or emailing us at more@handhaccountants.com.
