We have one of the highest VAT thresholds in Europe. This can make us relaxed about the issue of VAT registration. There are a number of pitfalls here. We tend to forget that if we are going to exceed the VAT threshold within the next 30 days we need to register immediately.
Supposing you are going along with a turnover of £50,000 a year and you get a contract probably from a Government or quasi Government organisation for £50,000, you may think you don’t need to register until you have raised the invoice and you will have 30 days. In fact as soon as you get the contract you need to register. Otherwise the penalties are horrible!!!
Timing can also be important. A high value cabinet maker with a business turnover just under the VAT threshold received a commission for a handmade staircase for a client. This would have put him over the VAT threshold in the month of September. So he needed to register from 1 November. He had been approached to do a similar series of staircases for a developer and the contract was to be signed by 31 August. This would have meant that he would need to register immediately therefore making VAT due on the original staircase – something he had not quoted for!
By dint of careful planning the contract signing was delayed until November, thus saving this client VAT of about £20,000.
TIMING IS EVERYTHING WITH VAT!!!
With the advent of modern technology and the internet, the rules have been amended for taxing the supply of telecommunications, broadcasting and electronically supplied services (TBES). Suppliers need to register for VAT in every Member State where TBES supplies are made or make use of an EU-wide accounting system known as the 'mini one stop shop'.
This is a major issue even for the smallest on-line business - Take Advice!!!
If you are a business that trades in a number of different jurisdictions, even if your turnover is not at the VAT limit you may need to consider registering for VAT in the UK to avoid registering in every European country where your customers live.
If this applies to you do come and talk to us.
Charlie’s Café is struggling and turnover (excluding VAT) has fallen to below the VAT registration limit. Charlie applies to deregister but doesn’t reduce his prices once he is no longer liable to VAT as the extra profit is a great help. However, this brings his gross turnover to above the registration limit. This means that he is trading above the threshold and liable to register again. Reducing prices by 5% would take Charlie below the threshold, but still allow an additional contribution to profit and the hope of extra business through price reductions!
There is a deemed supply of stock and fixed assets on hand at date of deregistration on which VAT is due at the standard rate. However, if the VAT due on the assets is less than £1,000 there will be no charge, so the value of stock and assets net of VAT could be as high as £5,000 and there would be no VAT to account for.