Value Added Tax (VAT) is a tax charged on most goods and services in the UK. (Dummies Guide to VAT) Businesses need to register for VAT under different circumstances. The diagram below shows when you need to register.
The compulsory registration applies when you have, or are about to reach, the threshold based on the amount of sales made within that financial year. If you your records are not up to date then you may inadvertently go over that line and incur penalties. HMRC check your annual accounts and will backdate any fines relating late registration. If you present your accounts when they are due, nine months after the end of your financial year, and you reached the threshold mid-way through, then you could exposed to cumulative penalties stretching back over fifteen months. In order to avoid these situations it’s best to have your figure on the pulse and keep track of when you are getting close to that level of sales, so you can register in time. This is where having a computerised system hyperlink to (Mamut Enterprise Software) overseen by your accountant would help avoid any these regulatory mishaps.
There are also other certain advantages for opting in early, over and above just avoiding fines. Ability to claim back on purchases can help a business cashflow, particularly in the early stages when there are more expenses in setting up than sales. It can help your standing, as customers and suppliers assume your business is of a certain size to warrant VAT status. The downside as always is that if you sell to the general public, or other sectors than cannot claim back the input amount, your product just got more expensive. For a further look at the some of these issues read our companion article of “Using VAT to your advantage”.
The decision on whether or when to apply into the scheme, should always be done in conjunction with advice from your accountant.
Behnaz Rayati is a Management Accountant with Expert Accounting & Finance http://www.expertacc.com/.
