VAT compliance guidelines for businesses
Registering for VAT and ensuring VAT compliance is an area of confusion for many business owners. From knowing when and how to register, to managing the duties around it, VAT can be a confusing subject. However, not knowing the obligations or not meeting them could land you in hot water with HMRC, so it’s important to be in-the-know.
When to register for VAT
The VAT threshold is £83,000, and this applies to turnover (taxable supplies, which applies to goods or services liable for VAT), not just profit. It is obligatory to register for VAT if you are going to hit or exceed this threshold, but businesses can also register voluntarily if they wish to. Some businesses may choose to register so they can reclaim the VAT on goods and services they use, or may simply do it to give their business a higher status.
VAT compliance when invoicing
As a VAT registered business, you will be required to include a variety of details on all invoices. There must be a date, unique invoice number, name and address of the business – as well as that of the customer you are invoicing. You must also include a description of the goods or services being charged for and the amount, including amount of VAT applied and total amount payable.
Cons of being VAT registered
For those considering VAT registration but who have not yet hit the threshold, it is important to consider the duties involved. There will be added costs, if the amount of VAT charged exceeds the amount of VAT on goods or services bought, so the difference needs to be paid to HMRC. Whilst the VAT will have been charged to the customer, so technically the business is simply a collector of VAT on behalf of HMRC, it can sometimes present cash flow problems for businesses. Higher charges for goods and services as a result of being VAT registered can also affect the competitiveness of the business.
There is also the paperwork to consider. VAT accounting will have to be factored into the existing accounting process, and a quarterly VAT return must be filed to HMRC. It may be worth considering accountancy software packages to help with this. Xero, which Adams Moore offers, is a cloud-based book keeping system that makes light work of a variety of business accounting functions such as invoicing and expenses filing. This can be a real help when it comes to logging and filing data to help with VAT returns and end of year accounts filing.
In any event, it is always advisable to seek professional help when considering VAT registration to understand the duties and obligations, and avoid potentially heavy penalties from HMRC as a result of either not registering or late filing.
Businesses considering going VAT registered, or those who are already registered and need help, advice or guidance on VAT compliance, can get in touch on 01827 54944.