The VAT registration threshold is set at £85,000 for the tax year. ‘Taxable supplies’ are anything that is subject to VAT. So, if your turnover of taxable supplies exceeds £85,000, or if you know that it will, you must register.
The current rate of VAT is 20% and if you register for VAT then you will either have to work this into your profit or you will have to charge this on top of your sales price.
For example; a coffee shop will normally raise their prices and sell their goods at £2.00 inc vat. Where as most service business will provide their services as net of vat; £200+vat.
It is important to understand the impact of VAT on your business and your customers.
The amount of VAT a business pays or claims back from HM Revenue and Customs (HMRC) is usually the difference between the VAT charged by the business to customers and the VAT the business pays on their own purchases.
It may also be possible that you qualify for the flat rate scheme
With the Flat Rate Scheme:
- you pay a fixed rate of VAT to HMRC
- you keep the difference between what you charge your customers and pay to HMRC
- you can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000
To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.
To learn more visit HMRC’s VAT Notice 700/1 should I be registered for VAT?