If you are running a business and your taxable turnover exceeds the current VAT threshold, which is £85,000, or you expect it to do so within the next 30 days, you are required to register for VAT with HM Revenue & Customs (HMRC). If your turnover is below the threshold, you can choose to register voluntarily.
Once you are registered for VAT, you must charge VAT on your taxable supplies at the appropriate rate (standard, reduced, or zero-rated), and you must account for the VAT on your VAT return. You must also keep VAT records, which should include sales and purchase invoices, and you must submit VAT returns to HMRC on time.
The standard rate of VAT in the UK is currently 20%, but there are some goods and services that are subject to reduced rates of VAT (5% or 0%), or are exempt from VAT altogether. You should check with HMRC or seek professional advice if you are unsure about the VAT rate that applies to your goods or services.
VAT returns must be submitted to HMRC online, and you will need to use VAT-compatible software to do this. You can either use accounting software that is compatible with HMRC’s systems, or use the free HMRC VAT online service.
You must submit your VAT return to HMRC on a regular basis, usually every three months, although there are some exceptions to this rule. Your VAT return must include the total amount of VAT you have charged on your sales (output VAT), the total amount of VAT you have paid on your purchases (input VAT), and any VAT you owe to or can reclaim from HMRC.
If you make mistakes on your VAT returns or fail to submit them on time, you may be subject to penalties and fines from HMRC. It is therefore important to keep accurate records and submit your VAT returns on time. If you are unsure about how to submit your VAT returns or comply with VAT regulations, you should seek professional advice from an accountant or tax advisor.