Some of our most frequently asked questions is about limited company VAT registration. One of the questions noted was: “Should I register my limited company for VAT? What are the benefits of being VAT registered, and what are the implications for my limited company accounting and administration?”
Let’s begin with what being VAT registered means.
VAT stands for Value Added Tax, which is currently set at 20% in the UK. This tax is added to most products and services sold in the UK, excluding some products that are zero-rated such as newspapers, magazines and books.
In terms of your limited company, if it is VAT registered you will need to add VAT to invoices that you raise; you will also add VAT if the place of supply is in the UK and the services provided are not exempt from VAT. In addition to adding VAT to your service invoices, you can also claim back the VAT on some of your business expenses that are VAT applicable and for which you have a VAT receipt.
When you should register your limited company for VAT:
A business, or in your case your limited company, must register for VAT when VAT taxable turnover is more than £85,000 in a 12-month period. You can register your limited company for VAT at any point if you expect your turn over to reach the £85,000 threshold.
If your limited company turnover will not reach this amount, you can voluntarily register your limited company for VAT if it suits you financially to do so, or if you believe you could benefit from reclaiming VAT on expenses.
If you are unsure about VAT registration and would prefer to wait, you can do so and later apply for your limited company to become VAT registered should you reach the £85,000 threshold. If you choose this option, you can charge VAT from the effective date of registration providing that the place of supply is in the UK and that the services provided are not exempt from VAT.
You also can reclaim VAT on certain expenses for your business as a contractor (example rechargeable or non rechargeable), providing you have a valid VAT receipt. You should keep copies of all receipts that relate to business expenses for at least six years, and if you are reclaiming VAT on goods purchased then the goods must still be under the business ownership. You can claim back VAT on goods purchased up to four years prior to registration; for services, this time limit is six months.
Responsibilities of being VAT registered
From your date of registration, you must do the following:
- Charge the right amount of VAT. Currently this is 20%, but if this changes you need to be aware and ensure you are charging the correct amount
- Keep VAT records and a VAT account
- Calculate and submit VAT returns (quarterly)
- Pay any VAT due to HM Revenue & Customs (HMRC); you should do this promptly and ensure you have sufficient funds in your account to cover any VAT due
How to VAT register a company
If you’re a client of Churchill Knight, we can help you with your limited company VAT registration.
When you apply for your limited company to be VAT registered, you must wait until you receive your VAT number before you start charging VAT or showing any VAT on your invoices. However, it is pertinent to note that you will need to pay VAT to HMRC for this period while you wait for your VAT number.
What are the other benefits of being VAT registered?
VAT registration is something many of our clients choose to do. As contractors, it gives them a more professional appearance. It is also very useful for claiming back VAT on business expenses.
A further benefit of registering a limited company for VAT is the ability to apply to join the VAT Flat Rate Scheme (FRS). This scheme allows you to fix the rate at which you pay VAT at a lower amount than what you charge. So you would charge 20% VAT on your services to your end client, but you would pay VAT at a lower fixed percentage of the gross amount charged to your client. If the VAT Flat Rate Scheme suits your circumstances, it could allow you to further maximise your pay in combination with the major benefits of having a limited company.
With that said, it is important to note that VAT Flat Rate Scheme takes into account the reclaiming of VAT on expenses; therefore if you choose to be FRS registered you will not be able to reclaim VAT on any expenses with the exception of Capital Expenditure over £2000.
How we can help you
When you use Churchill Knight & Associates Ltd as your contractor accountant, you benefit from our extensive knowledge of the contractor market and tax knowledge. Our dedicated team can provide advice and support on various matters from VAT to Personal Tax Returns and more. You benefit from the following when you use our service:
- Expert accountants with vast expertise
- Payroll, bookkeeping, invoicing, back office support and administration
- In-depth knowledge of the contractor market
- Personal Tax – free advice on tax planning
- Completion and submission of Quarterly VAT returns
- Liaising with HMRC
- Processed expenses and full administrative support
- Secure and mobile friendly Client Web Portal for submitting expenses claims and timesheets
If you are looking for a payroll service for your contractor career, then our service will provide you with a dedicated Account Manager who will help you complete all the necessary administration involved in operating a limited company.