If you’re typing “what is a VAT number?” into Google, the chances are you’ve got a lot more questions. When it comes to your business, VAT registration, types of VAT, and how to invoice with VAT are all topics you’re going to want to be well versed in.
But who has the time to read endless articles and government advice pages? Probably not you. That’s why we’ve done the reading for you and compiled everything you need to know in one place. Here’s what we’ll walk you through:
What is a VAT number?
Whether or not your business needs to register for a VAT number
How to register for your VAT number
What information you’ll need to provide
How long it takes to get your VAT number
Invoicing before VAT registration
Invoicing after VAT registration
But, before we get into the details, let’s start with the basics…
If you feel like saying a mouthful, you’ll refer to a VAT number as a value added tax identification number. This handy number is allocated to businesses for tax purposes. What it basically means, is that a business registered with VAT will add a VAT price to the products or services that they sell. Businesses are then able to get back the VAT that they paid when buying their goods.
There’s a pretty simple way to figure out if your business needs to go through VAT registration. UK law states that if any business’s VAT taxable turnover goes beyond £85,000, or will in the near future, they need to register. Your VAT taxable turnover is essentially everything that your business has sold that isn’t exempt to VAT.
If you’re wondering if your products and services are exempt or not, the UK government has put together a list of those that are:
Insurance, finance and credit
Education and training
Charity fundraising events
Membership organisation subscriptions
Selling, leasing and letting of commercial land and buildings (this can be subject to change)
Some businesses, can, of course, be “partly exempt” depending on what it is they offer. If you’re expecting to go over the VAT taxable limit, you may want to do what’s referred to as “voluntary registration.” If you do only end up registering after already going beyond the limit, you’ll be expected to repay what you owe.
If your business only temporarily goes over the limit, you can apply for “exception” by reaching out to HMRC.
Here’s the good news...most UK businesses can register pretty easily online with HMRC. All you’ll need to provide is:
Your turnover, business activity and bank details
Your registration date
Once you’ve provided the above information and created what’s referred to as a “Government Gateway account”, you’ll be fully registered for VAT and will be able to submit all of your future online VAT returns.
If you don’t want to go through the hassle, it is perfectly acceptable to get an accountant to take the weight off your shoulders. The UK government allows for an appointed accountant to represent you with all your returns.
You should receive a “certificate” within about 30 working days from when you registered. Though, this can take longer if they need to check back on anything. The certificate will be sent to your online Government Gateway account.
This is where people tend to get things wrong. You would think that you only start charging VAT once you’ve received your VAT certificate. But, this isn’t the case. The date you register is the date you’re expected to start charging VAT, with or without a number.
That being said, you can’t issue VAT invoices during this timeframe. We’ll go deeper into that later on.
The hard part’s over. You’re now VAT registered and ready to get started, but what’s next?
Start charging the standard UK VAT rate of 20% on all your products and services that aren’t VAT exempt.
Pay VAT on all the products or services that you purchase from other entities
File for online VAT returns every quarter.
The goal of this all is to ensure that the amount of VAT you charge and the amount you pay balance each other out, and if there are any large differences, you get this money back when you file your return every few months.
Invoicing can be tricky, and it’s crucial to get it right seeing as HMRC will not allow you to reclaim VAT if your invoice is in any way invalid. Here’s what you need to know so you can always claim what you’re owed.
So, HMRC says that you can’t issue VAT invoices while you await your certificate, but you’re expected to charge VAT regardless. How does that work?
It’s simple. Instead of highlighting the VAT on an invoice, they suggest you simply increase your price to include the standard UK VAT rate of 20%.
Here’s an example:
Your normal product costs £13.15
Instead of making the invoice out as £13.15 you add 20% and make it out as £15.78
Don’t show your workings out, simply make the invoice total £15.78
You can then send your customer a revised invoice highlighting the VAT amount once you have your VAT number.
According to government guidelines, there are three things you need to do to ensure you have a right to your VAT claims.
The first is to issue valid invoices and keep all of them on file in either paper or digital format.
The second is to keep hold of sales invoices whether they have or haven’t been cancelled.
The third is to keep all your purchase invoices for the goods and services your business buys.
Not everybody’s issued an invoice before, and for a lot of small business owners, this is new territory. That’s why the team at SumUp has created SumUp Invoices so you can send personalised and professional invoices via your SumUp App in just a few clicks.
For more tips and tricks on making business easier, head over to the SumUp blog.