Small Business: Essential VAT Guide November 2016 | Page 3
1 What is Value Added Tax?
VAT stands for Value Added Tax. This is charged when a VAT registered business supplied (sells) a taxable products or services
(taxable supplies) to a private individual or another business.
If you are a VAT-registered business, you may be able to reclaim
the VAT you pay when you acquired goods and services from other
VAT-registered businesses for the purposes of your business. If
you’re not VAT-registered, you don’t have to charge VAT to your customers, but you
can’t reclaim VAT you have paid (the VAT inclusive amount will be treated as your
business expenditure).
2 When to register for VAT
The goods or services your business supplied is treated as taxable supplies. You are
required to register for VAT if:
Your taxable supplies for the previous 12 months have gone over the ‘VAT
threshold’ (which is currently £82,000 for the tax year 2015/16); or
You think your taxable turnover will go over this limit in the next 30 days alone.
Taxable supplies include:
Supplies you make in the UK that would be subject to the standard, reduced or
zero rate of VAT.
Supplies of some types of services that you receive from businesses based outside the UK.
You may also be required to register for VAT if you bring goods into the UK from other EU countries with a total value of £82,000 or more, or if you expect to do so in
the next 30 days alone. On the other hand, if you sell goods from the UK to other EU
countries, you may need to register locally under distance selling rules.
If you need to register for VAT you must inform HMRC within 30 days of:
approaching the threshold; or
knowing that you will reach the threshold in the next 30 days
If your business turnover is below the VAT registration threshold, you can still register for VAT. This is particularly useful if you buy lots of goods and services from VAT
registered businesses and like to claim some of the VAT back to improve your cash
flow or your customers or clients include large businesses that only deal with VAT
registered suppliers.
If you make taxable supplies (or intend to), you can choose to register at any time.
Once registered, you have to charge VAT on all taxable supplies to all your
customers.
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