If your firm is outside of the United Kingdom, you must register for UK VAT if you intend to or are currently making supplies of products or services to UK clients with the United Kingdom at the point of collection. It is one of the most basic rules for foreign enterprises trading legally in the United Kingdom.
The United Kingdom first introduced the Value Added Tax (VAT) in 1973. It is a tax levied on the purchase price of some products, services, and other taxable items purchased and sold in the United Kingdom. Similar to the VAT system in the European Union, it is now distinct from that of the EU.
VAT Rates In The United Kingdom
If you’re in the UK, you’ll have to pay one of three different VAT rates depending on what you’re getting delivered. In the United Kingdom, the usual VAT rate is 20%. Domestic heating fuel and children’s car seats have a 5% discount, whereas food, literature, children’s clothing, and other items and services have a 0% discount.
The rates above are subject to several variations, including exempt supplies. Even though all sales are subject to VAT, some are exempt. Tax-free products and services include those in the following categories: health and life insurance; postal stamps; education; and postage.
VAT Returns In The United Kingdom
Companies with a VAT number and a virtual address London must file periodic returns outlining all taxable supply (sales) and inputs (costs). In the United Kingdom, returns are due either monthly or quarterly, with a combination of regulations and applications.
VAT returns are due one calendar month and seven days following the end of your VAT period in the United Kingdom. The HMRC Online Services system is essential for the electronic filing of returns.
When Should You Register For VAT?
Even if your company is not in the United Kingdom, you must register for VAT as soon as you begin making supplies of goods or services subject to UK VAT under the legislation for the place of supply.
Any VAT owed by your company from the date you registered for VAT must pay to HMRC (the UK tax authorities). Failure to notify HMRC of your company’s registration promptly could result in a financial penalty.
What Is The Cut-Off Point Of VAT?
If your taxable revenue reaches £85,000, you must register for VAT. Taxable turnover refers to all income generated by non-VAT-exempt sales. It includes even transactions with no VAT.
Companies which do not meet these criteria are exempt from charging VAT on their sales and are not required to register with HM Revenue & Customs (HMRC).
HMRC must be informed and VAT registration completed if a company’s turnover surpasses the threshold. The turnover level can be measured throughout a rolling 12-month period rather than a specific fixed-term like tax or calendar.
Unregistered businesses whose turnover is approaching the registration threshold should keep an eye on this since there are strict deadlines for submitting and charging VAT once the threshold gets surpassed.
What Is The Procedure For Registering For VAT?
Although most VAT registrations are online, there are a few circumstances where a paper application form would be appropriate, such as if the registration has a complicated background issue or if HMRC has a statutory requirement.
In general, foreign businesses must submit evidence to HMRC that they have passed strict anti-money laundering procedures and are legitimate, making the registration process more difficult.
HMRC will issue a VAT registration certificate on registering the business, including the VAT number, the effective date of registration, and the due date for the first VAT return.
Documents Required For VAT Registration
Making Tax Digital (MTD) laws will apply to UK enterprises with a turnover over the VAT registration threshold beginning April 1, 2021. Businesses having a turnover below the threshold can opt-in to MTD voluntarily. MTD will be mandatory for all VAT-registered enterprises starting in April 2022, regardless of annual sales.
Under MTD, you must preserve and maintain VAT records in either “compatible software which allows you to keep records digitally and tender VAT Returns” or “bridging software that connects non-compatible software (such as spreadsheets) to HMRC systems.” Furthermore, if multiple software packages were used, they must be linked digitally.
Keep the following digital records:
- The business name, address, and VAT number are all required.
- You may use any of the VAT accounting schemes.
- The value-added tax (VAT) you charge on the goods and services you provide.
- The value-added tax (VAT) you pay on the goods and services you get.
- Modifications to a return that you make
- For everything you buy and sell, keep track of the ‘time of supply and the ‘value of supply’ (excluding VAT).
- The VAT rate applies to the goods and services you provide.
- Transactions with a chargeback
- daily gross receipts total (if you use a retail scheme)
- If you use a Scheme, you can obtain VAT on the items.
- Total sales plus VAT (if you trade in gold and use the Gold Accounting Scheme)
Registering for VAT and accounting for the tax on purchases and sales is a watershed moment for many businesses.
Getting expert guidance on which scheme to join and putting in place adequate mechanisms in advance to handle the extra calculations and paperwork may make it not just a painless but also a pleasurable experience.