VAT Registration for the UK Entrepreneurs
We explain how this tax works: when you need to get a VAT registration, how to calculate how much you have to pay, and what helpful VAT services are out there
How Osome VAT Online Services Work
We Register
You for VATWe won’t miss the deadline for application so there won’t be any nasty penalties. We file all the necessary documents, and send you the VAT registration documents once ready.
You Don’t
Overpay TaxesWe make sure to account for every single item and service that can be deducted from your VAT filings. Your business stays compliant and you only pay what’s due.
We Specialise
in E-comm VATWe work with VAT filing in the UK and across EU, identify different tax rates for different items, and automatically process data on your transactions daily.
VAT in a nutshell
VAT or Value Added Tax is a Sales Tax on all ‘non-essential products and services’ that you collect on behalf of the government. The Standard VAT is charged at 20%. VAT registered businesses have to file VAT returns to HMRC every quarter.
As a seller, you don’t actually carry the burden of the VAT. It is considered to be a tax paid by the buyer. You charge the VAT on your products and services, the buyer pays the money, and then you collect that VAT, and send it to the Government.
However, you act as a buyer, too — when you buy products or services you need for your business. So as not to pay the government twice, you can deduct the VAT you already paid. This is called VAT returns.
Harriet is a hairdresser. She is VAT registered. Let’s say she charges her customers £24 for a haircut. Based on 20% VAT rate she keeps the £20 and collects the £4 to be paid to HMRC. However, for this haircut she spent £6 on shampoo and another £2 on scissors. Her total spending is £8 and 20% VAT comes to £1.6. HMRC allows her to deduct the £1.6 from the £4 collected and pay back the difference of £2.4 to HMRC.
When and How to Register for VAT
When to register for VAT: revenue above £90k
UK based businesses have to register for VAT when they reach £90k in yearly revenue.
It means you can sell up to £90,000 pounds in a 12-month period without registering for VAT. As soon as you go over that threshhold you need to register. If you don’t, you will face penalties later and will still have to pay the tax you owe.
Why register for VAT though your revenue is below £90k
You have to register for VAT if your business is based outside of the UK but you want to sell in the UK territory. There is no treshhold for you, you have to get VAT registration right from the get go.
If your company is based in the UK and you keep storage and sell outside of the UK in the EU, you need to register for VAT straight away, there’s no threshold for your case either.
Do I pay any VAT if my yearly revenue is below £90k?
Yes, you pay VAT even if your revenue is under £90k, but you don’t have to collect it or report to HMRC. Here’s how it works.
Businesses under £90k in revenue don’t need to register for VAT or pay taxes off their sales. Yet you still technically pay VAT as a buyer on some expenses. VAT has already been included in the price you’ve paid for the equipment or supplies you bought for your business. You don’t have to do anything on your end.
How do I register for VAT?
Once you know you’re at £90k threshold or near, you should register for VAT. HMRC registers you online: you need to create your VAT registration account, and fill in a 14-page application. After you apply, it takes HMRC 1-3 months to process your application and send you a letter with your VAT number.
VAT deadlines and penalties
It is your responsibility to inform HMRC in time that you are eligible to register for VAT. If you fail to do so, you will face penalties, unless there is a good reason for the delay. The penalty is calculated as an added percentage of unpaid VAT.
Get Two Months of Accounting for Free with VAT Registration
We do more than simply register you for VAT. We can handle your tax reporting and the rest of accounting and admin for UK-incorporated companies.
Need more?
Additional services you may need
- Additional sales platform £20/m
- Foreign VAT filing £50/m
- Multicurrency accounting £30/m
- Profitability report by sales platform £150/m
VAT Rates for Goods and Services
Some products that the government regards as essential are exempt from VAT, such as food. As your business sells goods or provides services, you must charge VAT for most of products, in case If you are VAT registered.
20% Standard Rate
The majority of the products sold in the UK have a 20% VAT rate. If your product is worth £5, you must therefore charge £6. The £1 on top is the VAT that you collect on behalf of HMRC.
0% Zero Rate
Zero-rated items are goods on which the government charges VAT but the rate is currently set to zero. They include children’s clothes and footwear, water, basic foods, books, and newspapers.
5% Old Reduced Rate (Not Active)
8 Jul 2020 — 21 Oct 2021
5% rate was introduced as a temporary support measure to leverage the negative impact of COVID-19. The rate covered most goods and services supplied by the tourism and hospitality sectors.
12,5% New Reduced Rate (Active)
21 Oct 2021 — 1 Mar 2022
The new rate replaces the previous 5% measure. It also aims at supporting the hospitality sector and is scheduled to be in action till March 2022.
Zero-rated items and Exempt items
These two categories might seem the same, yet they aren’t. You have to report selling both of them, yet can only recover VAT paid for the one, not the other.
Zero-rated
Zero-rated items are items that are usually subject to VAT, but the rate is currently set to zero. Businesses that only produce zero-rated supplies can register for VAT to recover overheads and costs.
- Printing: books, maps, newspapers, etc
- Children’s clothing and footwear
- Utilities
- Maternity pads
- Equipment for disabled people
- Civil aeroplanes
- Protective equipment (bicycle helmets, boots and helmets for industrial use)
Exempt
Exempt items are those where no VAT is paid or charged. You still have to record selling these on your VAT tax return. But if you produce them you can’t recover any VAT as none was paid in the first place.
- Education & training
- Insurance, finance, credit
- Burial or cremation of the dead
- Fundraising events by charities
- Sports & leisure
- Health services by registered medical professionals
- Antiques
- Building & construction
What you get with Osome
Full Assistance with VAT Registration
We understand your business and suggest the VAT structure that fits you best:
- We make sure you register when it’s time for your business
- We handle the registration painlessly online
- We know the legal requirements and make sure your business is compliant
No Sweat Process
We manage your VAT process end-to-end, so you don’t have to worry about it
- We advise on the VAT scheme that works best for your business
- We gather VAT information you have collected on sales automatically
- We apply a proper VAT rate for each product or service sold
- We complete your VAT returns and send them to HMRC on time
No overpaying your taxes
We automatically collect all the data on your expenses and your sales, so it’s easy for us to calculate the VAT due off your sales and the VAT you can recover from your purchases. It means your business stays compliant and you don’t pay even a penny on top of what you owe.
Experts in Post-Brexit E-commerce VAT
We help hundreds of e-commerce businesses to continue trading in the EU. We can register you for VAT in any EU country where you sell and store your goods, and we know how to calculate taxes due to each government. We can advise you on the best way to organise your sales across the continent or support the set up you have with the proper tax reporting.
Which VAT scheme should I use?
There are a few different methods by which you can pay VAT to HMRC. Let’s dive into a brief overview of each scheme.
Standard Accounting Scheme
You’re required to submit a quarterly VAT return and pay HMRC any VAT that you owe.
Keep a detailed record of all VAT that you charge on each sale—and that you pay with each purchase. Refunds are also paid quarterly. This scheme is most commonly used.
Flat Rate Scheme
This only applies to businesses with an annual turnover of less than £150,000. It is most commonly used by small businesses and sole traders as it is incredibly simple to understand. You pay a fixed percentage of your turnover to HMRC each quarter. You don’t have to record VAT that you charge customers or pay yourself.
Note that with the Flat Rate Scheme, VAT can only be reclaimed on some capital assets that cost over £2,000.
Annual Accounting Scheme
The scheme is only suitable for businesses whose turnover is below £1.35 million per year. You only have to submit one VAT return each year, though you still pay VAT on a quarterly basis based on best estimates.
You pay 9 monthly payments amounting to 10% of the previous year’s VAT payments, or if you’ve only been registered for less than 1 year, 10% of the previous year’s estimated VAT payments. You can also apply to pay 3 quarterly payments amounting to 25% of the previous year’s VAT payments. However, the scheme isn’t for everyone— short term losses should be considered. While submitting a VAT return only once a year saves time and admin, it also means that you can only reclaim VAT once a year. Therefore, the scheme doesn’t help businesses who have to regularly claim back VAT.
Cash Accounting Scheme
Suitable for businesses with a turnover under £1.35 million per year, this scheme means that you pay VAT on all sales (provided the customer has paid you) as well as reclaiming VAT on any purchases (provided you’ve paid the supplier). The Cash Accounting Scheme requires businesses to record income when it’s received, and record expenses when they are paid. This is different to the Standard VAT Accounting Scheme, where VAT is recorded on the date of issuing or receiving a VAT invoice. This is beneficial if you have customers who regularly pay late. On the flip side, startups making initial investments in new equipment (and purchasing the aforementioned stock on credit) should avoid using this scheme— you cannot reclaim VAT until you have paid the supplier.
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FAQ
How Long Does VAT Registration Take?
If you’ve decided to register for VAT, you can simply do so online, which will take around 20 days to process. Alternatively, you could do so by post via postal service, which takes up to 30 days to process.
Once you’re done with registering for VAT, you will have to charge VAT on applicable products and services sold, on both standard rate and reduced rate goods. You are also held responsible for your VAT liability, and should you fail to register when required, HMRC can penalise you and contact the online marketplaces in which you conduct business through. This could possibly lead to your suspension on these platforms and, consequentially, the downfall of your e-commerce business.
What Is a Reverse Charge VAT on Services?
The Reverse Charge moves the responsibility for the recording of a VAT transaction from the seller to the buyer for that good or service, when you buy goods or services from suppliers in other EU countries. It reduces or removes the obligation for sellers to VAT register in the country where the supply is made. If the supplier bears any local VAT on costs related to the service or goods supplied under the Reverse Charge, they can recover them through an EU VAT reclaim.
What Is a VAT Invoice?
A VAT invoice is a document that provides the details of products or services sold that are subject to a value-added tax. A VAT invoice is issued to let clients know the amount of money they owe for products or services provided, and to mark an obligation for that payment. According to the EU laws, businesses need to issue their VAT invoice to the client or customer within 15 days after the end of the month in which the goods and services were delivered.
How has VAT changed after BREXIT?
Domestically, VAT rules have not changed after Brexit. However, if your company trades to and from the EU, you need to take note of the new VAT rules.
As of 1 January 2021, UK businesses have to register for VAT in each EU country. There are no more common rules with the EU pertaining to VAT. UK businesses will not be able to use VAT simplifications such as distance selling thresholds or the online VAT refund process.
When you trade with the EU, it is referred to as imports and exports too.
Do I Need to Register for VAT?
VAT stands for Value Added Tax. It is a consumption tax and applies to businesses based in the European Union (EU) and UK zones. VAT is added tax on top of the goods and services provided. Goods and services that are bought and sold for use in the EU and UK have to be taxed. VAT (Value Added Tax) in the UK is also considered as an indirect tax where business owners collect tax on behalf of the government.
It is compulsory for you to register for VAT if your business’s taxable turnover is more than £90,000 based on a 12-month rolling calendar. If you are based outside the United Kingdom (UK) but are selling products in the UK or to UK customers, you also need to register for VAT.
Even if your e-commerce business is not required to register for VAT, you may still wish to do so. Voluntary VAT registration comes with its own advantages and disadvantages
Do I Need to Charge VAT?
In the UK, all businesses with an annual turnover over the VAT limit of £90,000 must register for VAT and charge their customers a VAT percentage as per the rate slab their products or services fall under. The VAT collected from customers then needs to be passed on to the government after deducting the business’s own VAT outgoings (Input VAT).
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