There are several reasons why your business may choose to register to pay Value Added Tax (VAT). Whatever the reason, you’ll need to understand what you have to do, and how you keep your VAT account and payments accurate – and our handy small business VAT guide is here to help.

Do small businesses pay VAT?

There is an annual VAT threshold, over which businesses must register to pay VAT. So if at any point, your turnover takes you over that threshold for the previous 12 months, you must register with HMRC. The VAT threshold changes, so check the HMRC website to make sure you are working with the correct amount.

Small businesses may also choose to register for VAT if their turnover is under the threshold, but they use a wide range of suppliers who charge VAT. Whilst you would have to add VAT on to your sales, registering would mean that you could reclaim the VAT you pay out. Some businesses also think that adding VAT to their invoices gives them a more professional edge, so may register for VAT even though their income doesn’t require it.

How to manage your VAT accounting

Although there are various VAT schemes, generally companies and individuals who are VAT registered must submit a quarterly VAT return. This must show:

  • Your Output VAT (the VAT you have received for goods or services you provide)
  • Your Input VAT (the VAT you have paid to others)
  • The difference between the two

If you have collected more Output VAT than you have paid, you must pay the difference to HMRC. If you have paid more Input VAT than you have collected, you will be entitled to a refund.

In order to complete your quarterly VAT return, you must keep records of all your own invoices and payments received, along with all VAT receipts from people you have paid for goods or services for your business. You can submit your return online and pay online too.

You may find that it’s easier to outsource parts of this task – particularly the bookkeeping element – to someone working as a virtual assistant .

VAT implications arising from small business pressures

All businesses face different pressures and for small businesses, it’s often the pressure of just getting everything done. There are penalties for not submitting your VAT return and payments on time, and you’ll want to avoid that. So to make your life as easy as possible, put some useful processes into place.

  • Select the VAT scheme that works for you – HMRC has a range of VAT schemes which may suit your business better than the standard scheme.
  • Remember to put your full business name, address and VAT registration number on your invoices and other correspondence.
  • Keep all your invoices and receipts filed and easily accessible.
  • Keep a VAT spreadsheet, or use a dedicated part of your accounting software to keep track of VAT coming in and going out of your business.
  • Put your Output VAT aside in a separate account, so that you have the money available when it needs to be paid.
  • Make a note of when your VAT return is due each quarter so that you are prepared in advance.
  • Get help if you need it. You can talk direct to HMRC, or ask your accountant. For help preparing a VAT return and keeping your records up to date, it’s worth looking into the benefits of a virtual assistant.

Run a small business? VAT registration and returns are one of the things you should be sure you’re getting right. If you’re looking for help completing your return take a look at our virtual bookkeeping services. Alternatively if you would like to know more about our remote assistants feel free to call us on 0800 994 9016 or use our contact form in the menu above.


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