It’s always great to see that your business is growing and your turnover for each year is increasing. You must be careful however, once the total turnover over a period of twelve months reaches £82,000 you will need to register for VAT. You’ll also need to take into account that the twelve month period does not necessarily mean your accounting year, so it helps when you are nearing the £82,000 threshold to keep a running twelve month total of turnover.
Once registered you will notice some changes to how you run your business. Most notably is that you will likely have to add 20% onto all of your invoices. This can be problematic as the increase of price will affect any non-VAT registered customers such as individuals without a business. You will also have to start completing VAT returns every three months (or quarter) and pay this extra 20% you are charging to HM Revenue and Customs.
There is one small relief, in that any goods you purchase for the business that have VAT charged on them will allow you to claim back or set off the VAT against the amount that you need to pay HM Revenue and Customs.
Registration is mandatory, failure to comply will be met with a penalty and if you fail to complete and pay the VAT return on time you will also face penalties and additional charges.
There are a few steps you can take to help organise and prepare yourself for VAT. For example on your bookkeeping records you can separate the VAT from purchases and sales to make the figures you need for VAT returns easy to find. It also helps to set aside an amount of money to cover the VAT amount due to be paid to HM Revenue and Customs. Finally you could send a letter to customers giving them a heads up about the price increase before they receive their next (more expensive) invoice.
Be sure to keep an eye on your twelve month running total for turnover because if your turnover falls below £80,000 you can de-register from VAT. If your turnover seems to fluctuate around the thresholds it may help to seek advice on how to proceed, or stay registered to avoid the chance of a penalty.
The thresholds of registering and de-registering for VAT have been on the rise for the last few years, so be sure to double-check the current thresholds by clicking here before you work out whether or not you should be registered.
We also offer a service to file VAT returns on your behalf if you give us the figures required, or we will be happy to sit down with you and discuss in more detail how you can account for VAT and how to save you the most time and money.
If you would like any assistance with the above, please do not hesitate to contact us.
