As you are trading (this applies to LTDs, Sole Traders and other business set ups) you can expect to make a turnover. You will need to register for VAT if you reach £85,000 turnover in the next month or within the end of your taxable year (within the 12 months in your tax period). This means you will receive a revenue (before any deductions for expenses or total gross amount) of £85,000. It also means you will need to watch out and foresee you will reach £85,000 gross revenue in the 12 months.
Take note that the turnover is to do with sales, services that are not exempted from VAT charges.
Remember that once you have reached, or you believe you will reach the mentioned threshold you will have 30 days to register for VAT. This 30 day applies next month when the threshold has been reached.
On the one hand nothing stops you if you wish to register for VAT at any time regardless of turnover in your business. On the other hand, you need to check if it is cost effective to register as you may incur in accountancy charges. Never mind the fact that clients may be affected by the new charges if you do not wish to compromise your future profits.
Once registered, you need to wait for your VAT number before you start charging your customers any VAT. It is very important that when you receive the VAT number you include it in your invoices.
You can find or shop around different software to aid with VAT calculations and administration. It is a must to control what VAT you are charging your clients against any VAT you pay in order to balance the books and make payments to HMRC on time. This is usually done quarterly. Not paying any VAT collected by the business to the HMRC could result in fines and furthermore. If you are not sure, ask for help from your accountant who can assist you to register as well as calculate VAT balance to pay HMRC. Peace of mind is precious when running a business!
Written by Maureen Chewe (Principal Accountant)