What are the VAT Rules for Small Businesses?

Value-added tax is one of the most important areas to focus on in the UK. So, getting the VAT rules for small businesses right is essential if you are carrying out your business activities through a small business structure or being self-employed. It can be a challenging task in terms of accounting, and the competitiveness of your margin profits can also be affected by this. So, if you aim to pursue the dream of running a successful small business, you have to get your VAT right and handle it efficiently. It is not just for keeping HMRC happy, but you will also be confident enough if you’re dealing with the matters right. In this guide, we will focus on the VAT fundamentals, like VAT rules for small businesses. Carry on reading to gather more information.

 

What are the VAT Rules for Small Businesses?

The primary rules for small businesses, along with self-employed individuals, to get registered for VAT are associated with their turnover. Once the turnover reaches £90,000 or above, you are required to get your business registered for VAT. This is known as an obligation or compulsory VAT registration. However, some businesses get themselves VAT registered voluntarily and this is ok. You can also do it before reaching a certain limit of the VAT threshold or if you expect it to reach the limit within a month.

Should I Register my Business for VAT?

You must have heard about the benefits of VAT reclaiming as a small business owner in the UK. Well, to get the benefits of VAT reclaim, you will have to understand VAT rules for small businesses as well as register your business for VAT. Once you are VAT registered, you can also charge it on the products or services that you are selling to your customers. The question that arises here is whether where you should register your small business for VAT or not. If your business turnover goes above the value of £90,000, you are required to get your business registered for VAT in the UK. However, in case of a lower turnover than this, you can still choose to get registered but it is not a compulsion then.

What are the Different VAT Rates and What Do They Mean?

The standard rate of VAT applicable is 20% in the UK, this applies to most of the services and products that your business might be selling. However, be aware that some of the products are under the category of a lower rate of VAT, zero rate or even fully exempted. The reduced rate of VAT is 5% and selected goods and services are included in this, such as children’s car seats. Selected goods and services for zero rate are most food and children’s clothes. Selected goods and services for expected rates include financial and property transactions, as well as postage stamps.

How to Register for VAT?

Once you have understood the criteria of whether you are required to get referred for VAT or not, the next step is to know how to get referred for VAT. You can simply go to the government website and get your business registered for VAT online. You are obliged to do it once your business turnover goes above £90,000. Once you’re done with the procedure, you will get a registration certificate which will have your VAT number and this will also show when your first payment will be due along with the first return. This certificate will be received within around a month after applying. Moreover, it is good to start maintaining the records carefully right after the applications and ensure accuracy.

Can I Reclaim VAT on Purchases Made Before I Registered?

It is allowed to claim backdated VAT regarding the services or products that you purchased before getting your business registered for VAT. You can make a VAT claim for up to four years in backdating. This is applicable for the products; however, in the case of services, you can only go back to the date for six months before the VAT registration date. Make sure that all the services and products that you are claiming are bought for business purposes only. So, for the safe side, keep all the receipts and invoices intact with you to make a smooth record.

Are you looking for professional tech-savvy tax advisors and accountants in the UK to guide you? Contact us now!

 

The Bottom Line

In conclusion, it is essential to develop an understanding of VAT rules for small businesses in the UK because this will help you to make informed business decisions. Small businesses that surpass the certain threshold of £90,000 will opt to get their business VAT registered. The process of getting registered for VAT is quite simple in the UK. You can simply go to the government website and do the process online. Make sure to start making accurate records right after the application is submitted. You can receive the VAT number along with the certificate within a month. You can also seek our professional help in case you are confused or a beginner in the business world.

Disclaimer: All the information provided in this article on VAT rules for small businesses, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.

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