How does VAT work?
VAT is a tax applied to the sale of most goods and services by the government. The most common rate of VAT is 20% which is called the standard rate. Vendors charge this tax on the goods and services they sell and they pay VAT when they purchase goods and services. The difference is then paid to the HMRC and it can even be returned to the vendor if the amount they paid in VAT is less than the amount they received as VAT.
At what revenue does VAT registration become mandatory?
Your business must register for VAT if over the past 12 months your taxable supplies have exceeded the VAT registration threshold.
For 2021/22 the threshold is £85000.It’s calculated on a rolling 12 months period, not just in the current tax year, your last financial year or the calendar year. If the total of your turnover over the last 12 months exceeds £85000 at any point, you’ll need to register for VAT.
Can you register for VAT before you reach the revenue threshold?
Yes, you can voluntarily register for VAT with HMRC at any time. The main advantage of getting registered for VAT voluntarily is that you can claim the VAT you paid while making initial business expenses such as buying equipment.
How many times do we have to file VAT returns?
In most cases, you have to submit your VAT returns to HMRC once every three months. That means, on average, you have to submit four VAT returns every year.
What do I need to claim back the VAT I paid?
You need a VAT receipt to claim VAT. This receipt will have the name of the vendor, their address, as well as their VAT number. HMRC will use this information to process your VAT claim.
Can I deregister for the VAT if my revenue drops below the threshold?
Yes, but the revenue threshold for deregistering is £83,000. This means that even if your revenue stays between £85,000 and £83,000, you will still need to charge VAT from your customers. However, if your revenue falls below £83,000, you can ask HMRC to deregister your business.