Registering for VAT
Discussion
I've just purschased a webserver with the intention of reselling for profit over the next 3 years.
Have a few customers lined up already, and could potentially have a lot more, possibly from businesses.
I assume I will have to register for VAT, how does the process work as I have no idea?
Have a few customers lined up already, and could potentially have a lot more, possibly from businesses.
I assume I will have to register for VAT, how does the process work as I have no idea?
You only NEED to register for vat if your going to exceed the threshold. iirc its ~ £55kish...
You can choose to voluntarily register, benefit being you get to reclaim the VAT on any purchases you make thru the company (Your Server, New Computer Hardware, your telephone bill, your internet bill, your bandwidth bill) etc.
however, this then means you have to charge your customers VAT
If they are also reg'd, then its not an issue, as they just reclaim back the vat they pay you, however if they arent reg'd, then your bill either goes up 17.5%, or your profits drop for you to swallow it.
Also, you have to do quarterly returns, as opposed to the annual accounts a typical LTD will have to return.
It all depends on whom your clients are likely to be, and what volume of turnover your expecting..
I am sure Eric will be along soon.
Edited to add.
www.hmce.gov.uk/business/vat/vatregist.htm
its £56k
>> Edited by JamieBeeston on Wednesday 11th February 19:13
You can choose to voluntarily register, benefit being you get to reclaim the VAT on any purchases you make thru the company (Your Server, New Computer Hardware, your telephone bill, your internet bill, your bandwidth bill) etc.
however, this then means you have to charge your customers VAT
If they are also reg'd, then its not an issue, as they just reclaim back the vat they pay you, however if they arent reg'd, then your bill either goes up 17.5%, or your profits drop for you to swallow it.
Also, you have to do quarterly returns, as opposed to the annual accounts a typical LTD will have to return.
It all depends on whom your clients are likely to be, and what volume of turnover your expecting..
I am sure Eric will be along soon. Edited to add.
www.hmce.gov.uk/business/vat/vatregist.htm
its £56k
>> Edited by JamieBeeston on Wednesday 11th February 19:13
Not a lot to add really.
The current Compulsory Registration Threshold is actually £56,000 Turnover (Sales).
As well as the normal quarterly submission of VAT returns, business can opt to complete their returns monthly or annually. The monthly option is usually exercised by businesses who regularly receive VAT refunds. The annual option is available to smaller business but in my experience is rarely used.
As has already been said, registering voluntarilly (i.e before you reach the £56,000 turnover threshold)may be advantageous to your business, particularly if most or all of your customers are themselves VAT registered or overseas. Being in a position to claim back Input VAT on costs is very useful, especially if you are contemplating large initial expenditure on capital equipment, marketing and/or other set up costs. Don't forget, a business can claim back Input VAT on certain costs incurred BEFORE the date it registers for VAT.
The requirement to complete annual accounts is nothing to do with VAT. All trading entities (Ltd Companies, partnerships and sole traders) have to complete annual accounts for a number of reasons - completion of tax returns, internal control and management of the business, proof of income levels for banks and lenders and statutory obligations under law.
The current Compulsory Registration Threshold is actually £56,000 Turnover (Sales).
As well as the normal quarterly submission of VAT returns, business can opt to complete their returns monthly or annually. The monthly option is usually exercised by businesses who regularly receive VAT refunds. The annual option is available to smaller business but in my experience is rarely used.
As has already been said, registering voluntarilly (i.e before you reach the £56,000 turnover threshold)may be advantageous to your business, particularly if most or all of your customers are themselves VAT registered or overseas. Being in a position to claim back Input VAT on costs is very useful, especially if you are contemplating large initial expenditure on capital equipment, marketing and/or other set up costs. Don't forget, a business can claim back Input VAT on certain costs incurred BEFORE the date it registers for VAT.
The requirement to complete annual accounts is nothing to do with VAT. All trading entities (Ltd Companies, partnerships and sole traders) have to complete annual accounts for a number of reasons - completion of tax returns, internal control and management of the business, proof of income levels for banks and lenders and statutory obligations under law.
I'm a sole trader and registered voluntarily for VAT ages ago. It works for me because (1) I buy in a lot of products and services that have VAT on them, so being able to reclaim it means I can make extra margin (or any at all these days!), and (2) all my customers are VAT registered, so they don't mind. In fact, if I didn't charge VAT, it could make me look silly in corporate eyes.
The extra accounting is minimal, but do pay the bill on time. Remeber that you are not giving them money as such, it is simply tax that you have collected on HMC&E's behalf, have kept for a bit, and are now sending on.
I use the 'cash accounting' option, which means that I'm only liable to pay the VAT once it has been received by me. Otherwsie, I'd have to pay VAT on invoices that hadn't been paid and bad debts. At least, that's I how I see it!
The extra accounting is minimal, but do pay the bill on time. Remeber that you are not giving them money as such, it is simply tax that you have collected on HMC&E's behalf, have kept for a bit, and are now sending on.
I use the 'cash accounting' option, which means that I'm only liable to pay the VAT once it has been received by me. Otherwsie, I'd have to pay VAT on invoices that hadn't been paid and bad debts. At least, that's I how I see it!
That is the correct interpretation of the Cash Accounting System. Of course, you cannot claim back the Input VAT on the costs until YOU actually PAY those so it works both ways. I'm sure you knew that anyway.
Cash Accounting was introduced at a time when there was very poor relief available for getting VAT back from defaulting customers. In fact, back then (1987) you could only reclaim unpaid Output VAT from Customs and Excise when your bad customer had officvially gone into liquidation or been made bankrupt. Bad debt relief is now much more easily available so the necessity for something like Cash Accounting is not so acute.
Personally, I'm not a great fan of it as it makes reconciling the year end VAT balance a bit trickier.
Cash Accounting was introduced at a time when there was very poor relief available for getting VAT back from defaulting customers. In fact, back then (1987) you could only reclaim unpaid Output VAT from Customs and Excise when your bad customer had officvially gone into liquidation or been made bankrupt. Bad debt relief is now much more easily available so the necessity for something like Cash Accounting is not so acute.
Personally, I'm not a great fan of it as it makes reconciling the year end VAT balance a bit trickier.
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