This April 2015, the VAT registration threshold was raised. Cue a small nationwide panic as everyone must now calculate whether they need to be registered for VAT, or find out that they’ve fallen below the line.
So you could easily be within the 36% of UK SMEs that don’t know what the new VAT limit is in the UK (don’t worry; that makes up nearly 800,000 of you.)
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The UK has the highest VAT threshold in Europe – and if you’re selling anything to deliver to another country in the EU, some of the new rules on electronic goods may have affected your need to be VAT-registered recently:
To sum up, there’s a lot of information to keep up with – so it’s no surprise that many SMEs are a little foggy on the details. However, with this guide and a lot of help from HMRC’s resources, all things VAT-relevant can become clear.
To start off, there are two basic questions – is my turnover high enough to charge VAT, and are the goods or services I provide VAT taxable?
2015 VAT thresholds at a glance
|I am…||The threshold is…|
|Registering for VAT||Anything over £82,000|
|Registering for distance selling in the UK||Anything over £70,000|
|Registering for bringing goods into the UK from the EU||Anything over £82,000|
Which of my products need to be sold with VAT?
If you sit above the VAT threshold, you must be VAT registered to charge VAT to your customers and potentially claim back VAT from your business expenses. That’s a lot of VAT – and there are a few different types.
|VAT category||How much?||What does this include?|
|Standard VAT||20% charge||Most goods or services|
|Reduced VAT||5% charge||A wide range of items such as domestic fuel/power, stop-smoking products, children’s car seats|
|Zero rate||0% charge||Still technically classed as VAT-taxable, but with 0% VAT (including basic food items, children’s clothes, books and newspapers and most public transport)|
|Exempt from VAT||Things such as financial services, insurance, betting, education, training, charitable fundraising events, and more.|
As well as charging VAT, businesses over the threshold can claim VAT back for business expenses. Unless…
- The goods or services are for personal use, for buying cars, business entertainment expenses or businesses gifts (when the gifts, to the same person in the same year, exceed £50).
- You sell or provide as a service is exempt from VAT, then you don’t need to (and won’t be able to) register for VAT.
- You are under the VAT threshold.
The good news?
If you bought goods or services relevant to your business before it was registered for VAT, you may still be able to claim back. The general rule is that you mustn’t have used the goods or services up (for example, no retrospectively claiming back for used petrol), you must have kept records of the purchases, and that you claim within four years for goods and six months for services.
And if all that hasn’t covered it for you, check out these video guides made by the HMRC especially for small and medium enterprises:
How to register and enrol for VAT online: official HMRC video guide
How to submit your VAT return online: official HMRC video guide
The complete, huge HMRC breakdown of VAT
The best resource for the final say on VAT guidelines in the UK will always be with HMRC (at their website Gov.UK) so keep an eye out and make sure you’re a VAT and tax pro.