VAT Registration and Making Tax Digital (MTD)

27th July 2018

Making Tax Digital (MTD) is quickly approaching, and this will be a good opportunity to ensure that you are on the correct scheme for your business.

The current VAT registration threshold is £85,000.

It is compulsory for you to register if your sales go over this in a 12 month rolling period, or will exceed the limit in the next 30 days alone. Once you reach this threshold you have 30 days to register.

Advantages of being VAT registered:

  • You can recover the VAT which other businesses charge you for their goods or services. This reduces the cost of the item you’ve expensed to your business.
  • You can register before the threshold if you wish, some businesses do this to give the impression that their company is larger (i.e. company turnover is over £85,000)
  • If you are ready for growth, by registering early you will not need to monitor the threshold in anticipation of exceeding the limit, you will be already registered. 

Disadvantages of being VAT registered:

  • You will want to add the VAT on to your total charge to customers, rather than keeping it the same and suffering the VAT on your sales yourself, and this will affect your competitiveness if you sell to consumers. But if you are selling business to business your customers should normally be able to recover the VAT themselves and therefore it will not impact on the cost to your business customers.
  • You need to submit VAT returns to HMRC and pay over the VAT you have collected. You will need to ensure you keep up to date information ready to file your VAT returns on time. 

VAT Schemes

Standard VAT Scheme

You have a requirement to report quarterly to HMRC, and have a month and 7 days after the quarter end to file your return and pay any monies due to HMRC. 

Under this scheme you can report to HMRC based on invoice accounting or cash accounting. 

Cash Accounting is available to businesses with turnover under £1.35m, and you only pay HMRC vat on sales based when you receive the funds, which is a good option for cash flow. 

Invoice Accounting is the standard way of reporting based on dates of your invoices and supplier bills, with claims available for bad debts. 

Flat Rate Scheme

Under this scheme, available to businesses with turnovers under £150k, you pay a percentage of your total sales to HMRC. The percentage you pay depends on the type of business you run – different businesses have different flat VAT rates, depending on how much expenditure VAT is generally claimed in their sector. 

You still have to charge 20% on your sales invoices but the benefit is that you do not need to track all your expenditure VAT, and you may find that you pay less VAT to HMRC. 

Annual Accounting Scheme

This scheme works annually, and also is available to businesses with turnover under £1.35m. Instead of quarterly returns, you have just one annual return to complete. 

You pay monthly instalments across the year for the estimated VAT you may owe at the end of the period, (based on the previous year) so  the benefit of this scheme is that you can budget your cash flow for the year, but you will need to ensure that you have the funds for any underpayment once you have completed your return, for the whole year.

If you would like to know more about VAT registration, and how Making Tax Digital may affect you please contact Emma Hardwick on 01273 701200 or email for more details.

Author: Emma Hardwick, Plus Advisory Team

Emma Hardwick | Plus Accounting | Brighton


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