Stage 7 – Why you need to be vat registered and what schemes are they?
You will need to be vat registered if the sales that you make are more than £85,000 in a twelve-month period. At this point you will need to register for vat, charge vat on sales that you make and submit vat returns to HM Revenue and Customs. There are exceptions to this rule which you may need to speak to your accountant about.
You may choose to voluntarily register for VAT at any point and it is not a requirement that you have to wait until your sales go above the vat registration threshold before you can register for vat.
There are several vat schemes that you can use – the main ones being Flat rate vat, Annual and Cash Accounting Scheme.
Flat Rate Vat – normally the vat you pay is the difference between the vat you charge out on your sales and the vat you can reclaim on the purchases. In the flat rate vat scheme the vat you pay is based on a percentage allocated to the industry that your business works in, the amount is calculated on the gross invoice amount that is the total including vat that you charge. For example, if the invoice you charge is £100 + vat and your flat rate vat percentage is 9% the flat rate vat you pay is £120 x 9% = £10.80.
Annual Vat – normally you will submit vat returns every three months under the annual vat scheme you will submit vat returns on an annual basis. You will be required to make payments during the year based on the vat bill you had in the previous year.
Cash Accounting Scheme – You will normally pay vat based on the invoices you issue and the purchases you make during the vat period. Under the cash accounting scheme, you will only pay vat and reclaim vat on the invoices that have been paid to you and the purchases that you pay during a vat period.