Are you a business owner, or thinking of starting a business?
Do you ever wonder if you need to be registered for VAT or not?
When you run a business whether you are a sole trader or a limited company, it is a legal requirement to keep financial records. But do you need to be VAT registered too?
The only time you legally have to become VAT registered is if or when your income is above £85,000. If you do not registerer for VAT registration as soon as you realize your income is over this threshold you could be fined by HMRC.
You can also, if your turnover is not yet £85,000 voluntary register for VAT. This is advantageous if your sales VAT (output) is lower than your purchases (input VAT. This is quite rare and it would be best to check with your accountant if this would be an advantage.
To be able to register for VAT you have to be Making Tax Digital (MTD) compliant. This basically means that you have to be recording your financial records digitally. For example, an online accounting package. All online accounting packages are now MTD friendly so that is not a problem.
When registering for VAT you need to decide if you are submitting quarterly or monthly returns, however, quarterly returns are the most common way of submitting returns.
It is advised too that you decide if your accounting system is accrual or cash accounting. Cash accounting is when you only use cash transactions i.e. like a shop, you sell over the counter and you don’t have clients that owe you money.
Whereas accrual accounting is when you have clients that owe you money, ie you have sent them an invoice and you have suppliers that have sent you an invoice and you have not paid yet. You have accrued the debt. Most business use the accrued accounting method. But do check with your accountant before registering.
If you’d like more finance tips and tricks then head back to the blog for more information.
If you can’t find the answers there, feel free to get in touch.