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June 11, 2024

Should You Register Your New Company For VAT?

When you first start a new business, via a company formation, you are not technically obligated to register that new company for VAT. You are only required to register for VAT if and when your turnover exceeds the VAT threshold within a 12 month period. This threshold however, changes periodically so it is important that you pay attention to any new thresholds to ensure that you are registering on time.

Currently, the threshold is £82,000. Should you expect to earn this much in revenue within a 12 month period, you will be required to register for VAT. If you are not earning this much, then you are free to determine whether or not you register based on specifics about your individual company.

You should understand that VAT registration is not automatic. This is something that you need to do, or have your accountant do if you have an official accountant on staff. If you do not register when you are required to do so, you could incur fines. If however, you have not yet exceeded this threshold then you can still voluntarily register, which is a good idea if you feel that you will in the near future meet the threshold. If you do decide to register voluntarily, you need to understand the most important schemes from which you can choose.

The standard scheme is the most commonly chosen. This scheme bases the amount of VAT that you reclaim or owe on the date of your invoices. Note that if your invoices are not paid during the same tax period however, this can cause a slight cashflow problem because you owe VAT to HMRC at the end of the quarter in which invoices are dated, not paid.

The cash accounting scheme solves this problem by requiring VAT to be paid or reclaimed at the end of the quarter in which the invoice is actually paid and not just dated. There is also a flat rate scheme, which can help you to save a lot of money depending on your total revenue. You are charged VAT or charge VAT at normal flat rates. If for instance, you choose 10 percent, then you charge VAT at the normal rate but you only pay HMRC 10 percent of your gross. Note that in this scenario however, you cannot claim back any VAT that you receive, so this may not be the most financially advantageous option for many businesses.

Determining whether or not you should register for VAT when you first form your new company may simply come down to personal preference. If you do not expect to earn the threshold amount quickly after you begin trading under your new business name, then you can forgo registering for VAT for a time down the road when you do meet this threshold. If however, you do expect to meet the threshold relatively quickly, then registering once you have your business set up is a good idea just to ensure that you do not miss the deadline and incur a fine for not registering on time.

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