Value Added Tax, an indirect tax on goods and services at every level of their path, has to be computed by the provider of a service. Limited companies paying VAT can get it back from HMRC on business purchases. VAT-registered companies evaluate the difference between VAT paid and charged and either pay HMRC the excess or reclaim it. You pay no VAT if your level of VAT registration falls short. Only businesses with a VAT taxable turnover above £90,000 must register for VAT; lesser turnover businesses can apply for VAT voluntarily since it helps them to charge and recoup VAT. Value-added tax might be perplexing for new limited company owners and sole traders switching to a limited company; nevertheless, our basic guide today covers the topic of what VAT is, its importance, and when and how to register for VAT as a limited company.
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What is VAT?
HMRC claims that most goods and services sold by VAT-registered companies are taxed with VAT, Value Added Tax. On most goods and services sold in the UK, VAT is a tax paid by companies registered for VAT. What does a VAT-registered company mean, then? In keeping with HMRC VAT rules, when the taxable supplies exceed the current VAT threshold, a company must register for VAT, and it’s possible when he clearly understands how to register for VAT as a limited company.
When is VAT Registration Compulsory for Limited Companies?
For limited companies operating in the UK whose VAT-taxable turnover surpasses £90,000 over a rolling 12-month period, VAT registration becomes mandatory. If your taxable sales exceed this level at any time during the year, you must register for VAT.
What are the VAT Schemes for Limited Companies?
Before discussing how to register for VAT as a limited company, first learn the VAT schemes. A limited company can register for several different kinds of VAT schemes. Its situation and the type of company itself will usually determine which one it decides upon.
VAT Flat Rate System:
Small firms especially benefit from the VAT flat rate plan if their annual taxable turnover is £150,000 or less (without VAT). This system depends on the industry your company works in and allows you to figure VAT as a percentage of your gross turnover. Since you do not have to track and record every single VAT invoice, this approach simplifies your VAT accounting. On your purchases, however, you cannot recover VAT (save from some capital assets over £2,000).
VAT Plan for Cash Accounts
Instead of billing a client for the related goods or services, the VAT cash accounting system lets your company pay VAT to HMRC upon customer payment. This system will be available to you should your VAT taxable turnover be £1.35 million or less. For your cash flow, especially if you have slow-paying customers, this procedure can be a huge help. Simply said, you can only recover VAT on purchases once you have actually paid your suppliers.
Annual VAT Plan for Accounting:
Should the VAT taxable turnover of your limited company be £1.35 million or less, you will be free to apply the VAT yearly accounting system. Instead of traditional quarterly returns, this program lets you file one VAT return annually. You will continue to make temporary VAT payments based on your estimated responsibility, and upon submitting your annual return, you will receive a refund or balance. Such an arrangement can help with budgeting and cut administrative costs; nevertheless, you must closely monitor your VAT records all year long.
How to Register for VAT as a Limited Company
You have to know how to register for VAT as a limited company once you have established your VAT eligibility. As such, the following actions outline the VAT registration process for a limited company:
VAT Registration:
You have 30 days from the end of the month in which your company income surpassed the threshold to apply for VAT registration. The VAT registration process has surely become simple and straightforward thanks to the digital service of the UK government. Just a few simple and quick procedures will let you practically register online on the HMRC website. As an alternative, you can register on the VAT1 form, a paper form.
Share the Required Information for VAT Registration:
The HMRC website makes it easy to register your limited company for VAT online. You have to provide the following information to achieve this:
- The legal name of the restricted firm.
- It’s registration or CRN number. Especially, a CRN is a special identification or registration number assigned by Companies House right away when a limited company is incorporated.
- Unique Taxpayer Reference (UTR) of the Limited Company. A UTR is a 10-digit number the HMRC assigns to any firm with tax liabilities, including a limited company, that resides in the United Kingdom.
- The limited corporation address and phone number.
- The type of activities the limited company is engaging in or the nature of the business.
- Information regarding corporation tax:
- Details on Pay As You Earn (PAYE), if relevant;
- Self-assessment materials, if pertinent.
- Details about bank accounts:
- The date VAT registration should start to have relevance or effect. Usually, the date your company crossed the VAT threshold. If you so like, though, you can select an earlier date;
- This is a projection of the VAT-taxable turnover for your business over the following 12 months.
Fulfilling the VAT registration requirements for a limited company depends on meeting the above-stated conditions. Apart from that, adding VAT to all the goods and services helps you start charging customers or clients after registration. Similarly, VAT shows on every invoice your clients receive to help you monitor their payments.
Completing and Filing VAT Returns:
Completing and filing VAT returns comes next once you registered your limited company for VAT. Learning how to register for VAT as a limited company also heavily relies on this. Usually sent quarterly in compliance with HMRC VAT rules, these forms are called VAT returns; they also provide information about the VAT-taxable turnover and VAT balance, which includes the VAT levied on sales and paid on purchases. Furthermore, proper records of all your VAT invoices and receipts are essential to complete your return correctly since they enable HMRC to determine your required payment or refund amount.
Conclusion
The value-added tax (VAT) is, in essence, an unavoidable idea for any company that is eligible for it. Therefore, if you have a fundamental understanding of the stages involved in the process of how to register for VAT as a limited company, you will be able to maintain compliance with the requirements set down by HMRC and guarantee that your limited business continues to move in an upward direction.
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Disclaimer: All the information provided in this article on how to register for VAT as a Limited Company in the UK, including all the texts and graphics, is general. It does not intend to disregard any of the professional advice.