UK VAT

What are UK VAT rates?

VAT is regulated by the Value Added Tax Act 1994 and other acts such as Annual Finance Act setting the VAT rates. There are three rates of VAT: standard rate (20%), reduced rate (5%) and zero rate (0%).
In addition some goods and services are exempt from VAT or outside the VAT system.
Read more here.

When do I have to register for UK VAT?

The compulsory registration threshold for VAT is £85,000 of non-VAT exempt income per financial year. Registration threshold for distance-selling into the UK is £70,000. The threshold is based on VAT taxable turnover – this means sales that are not exempt from VAT. You would also need to register for VAT if you receive goods in the UK from the EU worth more than £85,000 or you expect to go over the threshold in a single 30 day period.
Read more here.

How do I register for UK VAT?

The VAT registration forms can be filled online or on paper. An HMRC Online Services account is necessary for registering online.
Read more here.

Should I register for UK VAT voluntarily?

Even if you don’t have a legal requirement to register (i.e. your annual turnover hasn’t exceeded the VAT threshold), you may voluntarily decide to register for VAT.

The advantages of registering for VAT include:

  • You can charge VAT on the goods and services you sell. This is known as output tax.
  • VAT can be reclaimed on most goods or services purchased from other businesses. This is known as input tax
  • Your business may be perceived as looking bigger than it is, gaining additional credibility
  • Companies can backdate a VAT claim for purchases made before VAT registration.  The time limit is 6 months for services and 4 years for goods that you still have or that were used to make goods you still have.

The disadvantages of registering for VAT include:

  • You’ll need to file VAT return and pay your VAT every quarter by a certain date.
  • Additional bookkeeping and administration services may be required to ensure you comply with the VAT regulations
  • Submitting VAT returns late or incorrectly can lead to penalties
  • Charging VAT on products and services may be off putting to potential or existing customers who are not VAT registered.
  • If output tax exceeds input tax, a business will be required to pay the difference to HMRC. This could cause potential problems if a business is faced with a large, unexpected VAT bill.

Read more here.

Can I reclaim UK VAT on purchases made before registration?

There is a time limit for reclaiming VAT paid before registration. The time limit is 4 years for goods and 6 months for services from the date of the VAT registration. Businesses should reclaim VAT paid before registration with their first VAT Return.

What is the VAT Annual Accounting Scheme?

The annual accounting scheme helps small businesses by allowing them to submit only one VAT return annually. During the year, the business pays instalments based on an estimated liability for the year with the balancing payment due with in the return.

You can only join the annual accounting scheme if the business expected taxable supplies in the next 12 months are less then £1,350,000. Businesses also need to up to date with their VAT returns.

What is UK VAT accounting period?

Businesses can choose their VAT accounting period when registering for VAT with HM Revenue & Customs (HMRC).
This period of time is known as the ‘accounting period’ and this also sets the VAT reporting cycle.
It is possible to file company VAT returns online although we recommend to let qualified accountants to do that.

How often do I have to submit UK VAT returns?

If you’re a VAT registered business, you need to submit a VAT return and any payments due to HM Revenue and Customs (HMRC) on a quarterly basis (every 3 months). The quarterly returns should only be submitted online.

1Office can assist with online registration once HM Revenue and Customs has confirmed the VAT registration details.
When HMRC approves the VAT registration they will also confirm the VAT reporting cycle.

What the UK VAT return deadlines are?

The filing and payment deadline of quarterly returns is 1 calendar month and 7 days after the end of an VAT accounting period. This normally means that the 7th date of the second month after the end of the VAT accounting period is the deadline for the HMRC to receive your payment.