VAT advice for small business owners

As you may know, Value Added Tax (VAT) is added onto nearly every purchase anyone makes in the UK – whether you’re buying a bottle of wine from the supermarket or a new laptop, you’ll be paying VAT.

A business making less than £68,000 annually does not have to register for VAT. This means as a small company with a small turnover your products and services might be less than a VAT registered competitor.

If you are VAT registered you'll need to complete a return each quarter. When you complete your VAT return you tell HM Revenue and Customs how much VAT you have charged and how much you have paid. HM Revenue and Customs are hoping you'll charge more than you pay and will need to make a payment to them.

Basically, if you are buying lots of stock or goods to run your company that have VAT added or are over the threshold of £68,000 it's probably best to register. However if you don't, it's probably not worth the hassle and administration. 

Special note: There could still be a very good reason to register for VAT even if you don't meet the threshold or buy lots of goods - some people believe having a VAT number adds a certain credibility and prestige to their company, also some clients will only work with other VAT registered suppliers. Bear this in mind when making your decision. If you still can't make your mind up you can always call us and we'll be more than happy to help.  

If you'd like to speak to one of our self employed accountancy experts, Ask us a question, call 0500 234111 / 01442 275767.

The Flat Rate VAT Scheme

Instead of registering for the standard VAT scheme (outlined above), it may be more beneficial for you to register for the Flat Rate VAT scheme.

Within this scheme, you charge your clients at the standard rate and pay the government at a lower rate of the gross amount. Different sectors have different rates (call us to find out what rate you might be in). 

Find below an example for an IT company whose flat rate is 12% in their first year (new companies get a 1% first year discount):

Amount you invoiced -                      £50,000 plus VAT £8,750
Total amount received -                   £58,750
VAT paid to HMRC -                          £58,750 * 12% = £7,050
(flat rate example of 12%)

The difference between the VAT invoiced (£8,750) and the flat rate paid back to HMRC (£7,050) is yours to keep as profit!

£8,750 - £7,050 = £1,700

You’ll need to speak to an accountant before you decide which scheme is best for you. They’ll be able to work out the most tax efficient way to pay VAT.

How to register for VAT

There are two ways to register for VAT:

1. Online – visit HMRC’s website.
2. Post – you can get the relevant written forms from your accountant

Registering online is much simpler and means that you won’t need to change your VAT process in the future. Get the advice of an accountant before you register.

• Paying PAYE – advice on whether you need to set up PAYE
• Finding work – plethora of information on how to find business
• How to value your company – thinking of getting investment? Our guide on how to value your company.
• Small business expenses – which expenses can you claim through a Limited Company?
• Choosing an accountant – things to look out for when choosing an accountant
• Developing your company – how to go from zero to hero

Easy Accountancy

Easy Accountancy is the UK’s only national specialist accountancy firm for freelancers, sole traders and small businesses

If you’ve just started out as a freelancer or run a small business, you’ll definitely need a small accountant and there are plenty of options out there! However, most accountants will charge you every time you get in touch with them; for every phone call, email or meeting.

We don’t want our clients to be scared to contact us and potentially lose out on valuable tax saving advice. It's even more important when you first start out as you really need to set your business up in the best way possible. As a start up you’ll probably have loads of questions and will really appreciate the fact you can call your accountant as many times as you like without the fear of racking up large bills.

Our low cost, all-inclusive fixed-fee accountancy service includes unlimited access to your own accountant throughout the year, so you never need to worry about picking up the phone and then receiving a bill afterwards for the privilege, and covers all your business and personal tax affairs needs. All clients additionally receive: 

• Help to run your business in the most tax efficient way possible
• Help so you can understand the taxes you need to pay
• Advice on the best ways to manage your business
• Updates and reminders so you'll never miss a deadline
• Help to ensure you maximise your tax allowances
• Provide proactive tax advice throughout the year

We’ve saved our clients up to half on their accountancy bills – if you’d like a quote click on the quote me button to the right of this page. Alternatively, call us on 0500 234111 / 01442 275767 or email aaron.oneill@easyaccountancy.co.uk

We also have a money-back service guarantee - all of your telephone calls and emails will be answered on the same day, or we will refund your monthly fee (another first within the accountancy world).

To appoint us as your accountants, please fill in our Client Agreement Form online.

If you are a contractor working through a limited company then visit SJD Accountancy (our sister company) who specialise in providing tax advice and accountancy services for Limited Company contractors. You can also keep up to date by following the SJD Accountancy Twitter

You may also find the following pages helpful:

• Free guides
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