VAT is a tax paid by the customer and is not a tax on individual businesses. While businesses pay VAT to (HMRC), the customer has already paid the actual cost, which is covered by the price of the products or services purchased. As such, it is an indirect tax, however, companies are responsible for reporting it to HMRC. VAT registration is highly important. Once you reach the threshold, you must register for VAT as quickly as possible. If you don’t and HMRC finds out, you may have to pay a hefty fine and face penalties.
How to Register
It is simple and free to register for VAT. The HMRC website is the best way to do it online. Begin the registration process by clicking here. When you register your business for VAT, you will create a VAT online account that you will use to submit your VAT returns to HMRC. The VAT online account is also known as a Government Gateway account.
If you are unable to register online, you can register by post using a VAT1 paper form. More information on how to accomplish this may be found on the government’s website.
What will I require?
When you go to register, make sure you have the following documents with you:
- Business contact information
- Account in a bank
- Information about the business’s turnover and type
- If you are an incorporated business, such as a limited company, this will be your business UTR. If you are a sole trader, this is your Self-Assessment UTR).
Advantages of VAT Registration
Being VAT registered helps your company appear larger and shows that your yearly revenue exceeds £83,000. This can be advantageous when competing with businesses that are not VAT registered.
Your VAT number can be shown on invoices/websites, making your business appear more desirable to potential clients.
You can recover VAT spent on business services.
VAT Certificates
A VAT certificate is a document issued by HMRC to prove that your company is legally registered for VAT.
A VAT certificate includes:
- Your company’s unique VAT number
- The effective date of registration (the date from which VAT needs to be charged on VATable sales)
- When and how to file your company’s first VAT return and payment
According to HMRC, most VAT certificates are delivered within 30 working days. A copy is often sent to your Government Gateway account, which you can obtain using the three-step method explained above.
If your accountant applied on your behalf, HMRC will mail a copy of the certificate to your registered office address. Once HMRC has completed your registration, a copy of the VAT certificate will be accessible online.
VAT Numbers
Having a VAT number indicates that a company’s products or services will have a VAT fee.
VAT numbers differ from country to country, but there is one common feature. They can have between four and fifteen digits. In addition, they begin with the two-digit country code and continue with 2-13 other characters.
So what do you do whilst you wait for your VAT number? You’d expect that once you’ve obtained your VAT certificate, you could start charging VAT. However, this is not the case. The day you register is the date you are required to start charging VAT, whether you have a number or not.
However, you cannot submit VAT invoices during this period.
Once you receive your vat number you will have to:
- Start charging the standard UK VAT rate of 20% on all non-VAT exempt items and services.
- Pay VAT on all goods and services purchased from third parties.
- Every quarter, submit an online VAT return.
The purpose of this is to guarantee that the amount of VAT you charge and the amount you pay the balance out. Furthermore, if there are any major differences, you can get this money back when you file your return every few months.
VAT Return
A VAT Return estimates how much VAT a business should pay to HM Revenue and Customs or be repaid by them (HMRC) by taking into account:
- The amount of VAT you can reclaim for business purchases
- Your total sales and purchases throughout three months
- The amount of VAT you have to pay on sales
Even if there is no VAT to pay or reclaim, all VAT-registered firms must file VAT returns. Businesses that are not VAT registered are exempt from filing VAT returns.
Different VAT Types
| Type | % of VAT | What the rate applies to |
| Standard Rate | 20% | It is true for the majority of goods and services. |
| Reduced Rate | 5% | This applies to goods and services such as some health products, petrol and heating |
| Zero Rate | 0% | Zero-rated goods include exported goods, equipment for the disabled, prescription medications, water, and sewage services. |
VAT Invoices
A VAT invoice is a special sort of invoice that is provided when a sale is taxed
Non-VAT registered businesses should never charge sales tax and should always send regular invoices rather than VAT invoices.
According to HMRC’s VAT invoice standards, a valid VAT invoice must include:
- A distinct and sequential invoice number
- Your company’s name
- Your registered mailing address
- A supply date
- Name and address of your customer
- A description of the products or services offered
- The cost per item (not including VAT)
- Your VAT number
- The VAT rate charged per item
- The quantity of each item
- Any discounts that have been applied to each item
- The entire amount owed (not including VAT)
- The entire amount of VAT that is due