Her Majesty's Revenue & Customs (HMRC) are responsible for applying the law in the case of VAT(Value Adde Tax) and there is a great deal of information available on their web site. What we provide here is an outline of the important issues regarding the status of the SME and Start Up with regard to VAT

The threshold for registration is currently £73,000 of taxable supplies in any 12 month period. Taxable supplies are any goods and services sold. Be aware that registration is mandatory if sales exceeds the threshold so it is necessary to forecast when that might be reached in order to register in time otherwise a penalty could be imposed

The tax is the difference between that collected with the sales and that which is paid for goods received to operate the business. There are various schemes provided for paying the VAT due and there are special methods allowed for retailers. In some cases, especially at start-up, there will be a refund of the tax

Voluntary registration can be made before the threshold level of business is reached. The advantages are

the ability to reclaim some of your input tax. For a start up with a great deal of early expenditure this could be a way to reduce outgoing cash

increased credibility for your business - some businesses prefer dealing with suppliers who are VAT registered.

supplying other VAT registered businesses will allow them to reclaim the VAT charged.

However there are disadvantages such as

you will need to start keeping VAT records and making regular VAT returns, which means more unproductive paperwork

if you supply the public or non VAT registered businesses then they cannot reclaim the VAT you have charged.

If your VAT registration is delayed and backdated, you may need to make special arrangements to cover your VAT liability

HMRC provide a lot of help in getting you registered and to ensure that it is done properly. They provide a step by step process on their web site in order to ensure that you are registered properly. At any step along the way you can correct an earlier answer

If you do need to register, the forms you require are on the HMRC web site

See also

VAT Accuracy
VAT Overseas
VAT Penalties
VAT Records
VAT Return
VAT Taxables

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Last Update 08-Jan-2012

Date first published 18-Dec-2005