The world of tax as it applies to you and your small business is an incredibly important one, and yet often more than a little confusing; one of the areas that seems to confuse most is that of VAT (value added tax). Most business owners know that they must register their business for VAT but are a little unclear as to the exact rules. If and/or when one should register for VAT is a common question that many businesses would like a simple answer to.
There is in fact more than one type of registration, which is probably what confuses people; 'compulsory registration' is, as its name implies, the point at which the law says you have to register your business. Here in the UK, the VAT threshold is when the value of your business' taxable commodities and services reaches £85, 000 in a year. As well as the previous twelve months, the law also states that if you are aware that you will reach this figure in the next month you are also obliged to register.
You are obviously not obliged to register for VAT if your business does not reach this threshold, but many businesses do choose to do so; this is called 'voluntary registration' and it has both advantages and disadvantages.
One of the reasons that a business may choose to voluntarily register for VAT before they reach the UK threshold is that when a business regularly invoices other VAT registered customers they are able to claim back some or all of the VAT charged on their purchases.
Voluntarily registering your business for VAT can also improve your business profile by leading other businesses to infer that you have a much higher turnover than you actually do. This will open streams of business to you from those wishing to do business only with larger concerns as they include you in the mix.
However, once you have registered for VAT you will be required to submit a VAT return each year; adding to your business' paperwork and form filling obligations will obviously add to your workload; something to be considered if you are a small business owner struggling with an already full time table.
It is not recommended that you voluntarily register for VAT if your only customers are the general public, who cannot claim back the VAT that they pay, as you will have to add an extra 20% to your prices*, which could make you uncompetitive, better then to wait until compulsory registration kicks in, at which point your larger turnover may allow you other ways to increase your commerciality.
Whatever size business you have, making a decision about when to register for VAT without first sitting down with your accountant and discussing all of the options open to you would be fool hardy to say the least; most accountancy professionals have a good working relationship with HMRC and an in-depth understanding of the benefits and disadvantages of each alternative, so use their knowledge to make the best decision for your firm.
In simple terms you must register for VAT if your business is over the VAT threshold, but if it is under it you have a choice; choosing to register voluntarily is beneficial for some businesses and less so for others, but the ways in which this will affect your own business are probably best explored by someone with an understanding of its financial history and its future forecasts.
Give us a call on 01322 219 121 and speak to our friendly accountants in Dartford.
We offer the following accountancy services in Erith and around Kent
Bookkeeping | Management Accounts | VAT Returns | Corporation Tax | Payroll / PAYE Services | Construction Industry Scheme | Company Formation Process | Self-Assessment Tax Returns
Visit our Accounting Services page
*correct at the time of publication
When people think of accountants, the normal image that comes into their heads is someone sat at a desk behind a pile of paper, completing tax returns. However, while that may have been true in the past, a new age is upon us.
People are no longer looking for the bog-standard accountant; they want one that can help, not only support, but grow their business as well. Here are some reasons why you need an accountant.
There are advantages and disadvantages with starting a business either as a limited company or a sole trader.
Operating as a sole trader gives the advantage of requiring little in terms of administration. You must register as being self-employed with the Inland Revenue within the first three months of trading and you will pay Self Assessment Tax as well as national insurance.
As a sole trader you are personally responsible for any monies owed to government or creditors and hence your personal assets including your home can be at risk.
We often focus at the end of the year on our review of the year that has gone, and consider plans for the New Year and then set goals based on what has been identified. The end of the financial year is also a good time to stop and review. It is worth investing some time reviewing whether you are meeting your planned objectives and goals to date. You don't want to waste the next 6 months just because you could not spare a couple of hours mid year. Therefore take some time to check year-to-date highs, lows, the planned, the unexpected, the wins and the losses.
With the UK in lockdown, as of 23 March 2020, many businesses and self-employed people are concerned about their finances and what the future holds.
The Chancellor has set out a package of temporary measures to support public services, people and businesses through this period of disruption caused by COVID-19.
If you would like to find out more, go to COVID-19: Support for businesses. We realise that at the time of writing that this is an ever-changing situation, which we will be staying on top of.
Please stay safe and positive during this time.
Why even small businesses in Kent should hire a bookkeeper
Getting into a business is not an easy job; it is not even a relaxing thought. It takes an extra special person who would do the mammoth task of managing the entire business/ When the business expands, more so the task of maintaining the financial records becomes demanding. Companies would certainly need help in organising their financial data and that is when they think of outsourcing a bookkeeper. If your business is in the Dartford, Kent area, we have bookkeepers on hand to keep your business on track.
Contractors and agency workers could soon be forced to pay more in tax and National Insurance under changes put forward by the Government.
What is IR35?
Inland Revenue 35 was originally introduced in 2000. Its aim was to prevent individuals from setting up as a company and not paying tax and National Insurance contributions. Before this ruling, a worker could leave their job as an employee and start the same role the following day as a limited company.
Payroll is at the heart of any business. It is the one financial function of any business that must be punctual and accurate. It also has enormous potential for assisting in other areas of the business.
Even a small delay in paying staff can trigger a range of consequences from staff discontent through to full-scale industrial action. An underpayment or overpayment to an employee can cause problems as the employee will demand prompt correction and have a negative view of the company. Sometimes there are legal and practical reasons which prevent you from recovering an overpayment.
When the time comes to complete your Self Assessment Tax Return, you have 2 options.
1 - Do it yourself
2 - Outsource it
But which do you choose?
Well, it all boils down to time. What you need to do is to take an estimate of how long it will take you. Say your Sole Trader Accounts are particularly complicated, with a lot of money coming in, and a lot of expenses going out of your business.
VAT Return Tips For Your Business - 10 Ways to Save Money and Time on VAT Returns
1. Pay VAT on time
Avoid penalties by paying VAT on time. If your VAT return is late, HMRC will make you pay a percentage of the unpaid VAT at the due date. You will not be charged the first time this happens but you a warning will be issued. If it occurs again within the following 12 months, an assessment will be made to determine a surcharge of up to 15%.