It is important to understand both when VAT registration is required and the ongoing obligations that follow. The VAT registration threshold is currently £90,000 of taxable turnover, although businesses below this level can choose to register voluntarily.
Once VAT registered you must ensure you meet your required responsibilities. Businesses must charge VAT on their sales, known as output VAT, while also incurring VAT on most purchases, referred to as input VAT. In practice, VAT-registered businesses act as a collector on behalf of HMRC, charging VAT to customers and paying it over periodically.
The amount payable to HMRC is the difference between output VAT and recoverable input VAT. Where input VAT exceeds output VAT, a refund may be due. However, it is important to note that not all input VAT is recoverable, and care should be taken to ensure claims are valid.
Having a VAT registration also brings with it a number of administrative responsibilities. As a VAT-registered business you must:
- Include VAT in the price of all goods and services at the correct rate.
- Keep records of how much VAT you pay for things you buy for your business.
- Account for VAT on any goods you import into the UK.
- Report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HMRC. This is usually done every 3 months but there are other options available.
- Pay any VAT you owe to HMRC.