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How to Apply for VAT for Your Small business

Something that every small business owner needs to learn to navigate is paying taxes.  

VAT stands for Value-Added Tax and is imposed on goods and services alongside the original charge.  

person holding a receipt
Get to grips with what taxes you should be paying…

Unlike other taxes which have to be paid later on, VAT is paid upfront alongside products. The business selling the product is effectively collecting tax on behalf of the government, rather than paying tax out of their incomings.  

If you need to apply for VAT for your small business, then this article is for you. Just follow these four steps and you’ll be ready to go. 

Read Now: Do I Need to Register My Business for VAT? 

  1. Check if you’re eligible 

You’re eligible to pay VAT if your business’ annual taxable turnover is over the threshold of £85,000. 

If your business has been achieving a turnover of £85,000 or over for the past year (or is about to do so in the next thirty days) then you’ll find that it’s mandatory to apply for VAT. If you don’t, you’ll face a fine. However, you can apply for VAT even if your annual taxable turnover is less than £85,000. 

You won’t be eligible if the goods or services your business provides are all VAT-exempt. 

  1. Gather the required documents 

In order to register for VAT, you need to provide information to HM Revenue and Customs (HMRC) relating to yourself and your business. Said information will include: 

  • Your National Insurance (NI) number. 
  • Your business’ bank account details. 
  • Details of businesses your business has been associated with in the last two years. 
  • Certificate of incorporation – this confirms your business legally exists and is permitted to trade. 
  • Details of any businesses that have been transferred (i.e. acquired) by your own. 

These are all proof of who you and your business are and provide the necessary financial details for collecting VAT. 

Read Now: VAT Inspection: How to Prepare and What to Expect 

  1. Register 

As soon as you’ve collected all the proof you need, you’re ready to register for VAT. This stage is pretty straightforward and you don’t need to pay to register. 

Registering can be done in two ways: 

  1. Choose an accounting scheme 

When you register you will be asked which accounting scheme you wish to use. An accounting scheme is how HMRC calculates whether you owe VAT or you need a refund. 

person choosing between accounting schemes
Consider which accounting scheme suits your business.

There are mainly four types of accounting schemes: 

  • Standard VAT accounting scheme – You record the VAT that’s collected on each sale and paid with each purchase before submitting a VAT return to HMRC every quarter (i.e. four times a year). 
  • Annual VAT accounting scheme – You submit a VAT return once a year. 
  • Flat-rate scheme – If you’re a smaller business, you can skip all the VAT accounting and pay only a percentage of your turnover as VAT. 
  • Cash accounting scheme – You’re assumed to have paid or collected VAT when an invoice has been raised. 

Read Now: An Accountant’s Guide: The Accounting Cycle  

Bonus: After you’ve registered 

Now that you’ve registered for VAT, you need to properly implement it as part of your business. This will include: 

  • Adding VAT to the prices of what your business specialises in. You can use an online calculator to help you. 
  • Filing VAT returns and paying any VAT that’s due to HMRC. 
  • Including VAT when issuing invoices to your customers. 
  • Keeping digital records and a VAT account. Said records must possess correct and complete readable information and be kept for at least six years.  

This was our guide on how to apply for VAT for your small business. If you’d like more help with tracking your finances, don’t hesitate to contact us today at Count. 

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