How to register for VAT is a common question for new business, so in this article Rutton explains some of the pitfalls and how to avoid them.
How to register for VAT?
Well, most people would do a simple internet search. HMRC will, of course, have plenty of ‘help’ on their website, so hopefully that ‘hit’ will come up. And it’s free!
Which is fine as far as it goes.
But the real answer is, it’s trickier than it looks. There are several aspects that need special care. Some items are not obvious – VAT is a complex tax. And generally, the system is loaded against you for getting it wrong:
What type of registration?
The first big divide is, compulsory or voluntary registration? For example, is your current yearly turnover (say to the end of last month) over the VAT registration limit of (currently) £83,000? If yes, you have to register. If you don’t register within 30 days, there could be interest and penalties. Even worse, you could be charged VAT on your VAT-less income from the 31st day! So if in doubt, get proper advice.
There are many other types of registration – voluntary, going concern and so on. Each of those also have their own tricks and traps. Again, if unsure, get advice. It’s not obvious or easy to pick up on the rules if this is your first business or VAT experience.
Registering online is easy – that’s what they tell you – but the ticking the right boxes is not. And those boxes are important.
How long will it take? And when is my first VAT return due?
Another innocent question with a difficult answer. One of our clients recently had a salutary experience. He registered in November 2015 and finally got notification in August 2016! His first return was from November 2015 to June 2016! (VAT returns are usually three months long.) So watch out for yourself, and get professional help if unsure.
There is a good VAT general helpline. They tend to be good on the basic rules, and not always on the little wrinkles.
Will they tell me when my first VAT return is due?
Well, you would think so, wouldn’t you?
In the old days it was all paper. You got your certificate through the post. You got your return through the post. In paper. There was no doubt as to what was required, and for which time period. (Unless you always throw the brown envelopes in the bin!)
Now, alas, it’s all online. Seductive as that sounds, things can now go wrong SO much more easily.
For example, the client with the eight-month VAT return did not fill in the online registration box for email reminders. Thus, none came through! So the first he knew about the late eight-month VAT return was an estimated VAT bill for £1,600. Which, of course, was an estimate only (although that also was not obvious!).
Even if he paid that, he still had an overdue VAT return to calculate, file and pay, never mind the other consequences of a late return.
So when registering, watch out for that box to fill in your email address to receive reminders!
HMRC support is free, and registration and VAT returns are all online. That’s great, but it’s only a mechanism. Things can go wrong much more easily with a paperless system.
The best answer unfortunately is never the cheapest. Get proper professional advice as you go. It will almost certainly save time, money and anxiety in the end.