VAT is a tax that can be tough and if you make mistakes, you might have to pay a lot. This page talks about some common problems you might face with VAT if you work for yourself, with a partner, or have your own company. Remember, this is just a basic guide.
You don’t always have to sign up for VAT. There is a page called “Value-added tax (VAT)” that tells you what VAT is and how much it is right now.
Further down, we will tell you when you need to sign up for VAT and what you should do if you are signed up. To understand VAT Threshold 2023 better, read this article until the end:
Charging VAT Threshold 2023 on sales
Not Every Sale Needs VAT: Some sellers do not add VAT to their prices because they do not sell enough stuff, or what they sell is not the kind that gets VAT added. They can choose to add VAT if they want, though.
When You are Registered, You Add VAT: If you sign up for VAT, either because you have to or because you chose to, you start adding VAT to the things you sell that should have VAT. It is like adding a little extra to the price tag that the tax office asks for.
Compulsory Registration
If your business sells a lot, over a certain amount, you have to sign up for VAT. It i’s like getting a membership card that says you are allowed to charge VAT.
There are mainly two tests:
Test 1
Every month, you have to add up how much you sold. Keep track of this total for the last 12 months. For most, this is the same as their VAT taxable sales. If this 12-month total hits £85,000, you must sign up for VAT before the next month ends.
You need to keep an eye on how much you sell over any 12 months. If it adds up to the limit for VAT, which is a set amount of money, you have to sign up for VAT. It is not just about how much you sell in your usual yearly accounting time.
Test 2
If you think you’re going to sell more than £85,000 in just 30 days, you have to sign up for VAT right away. It’s like if you’re expecting a lot of money quickly, you need to tell the tax office immediately.
Voluntary Registration
Even if your business does not sell enough to be forced to sign up for VAT, you can still choose to do it. It is like joining a club, even if you are not required to.
How to Register VAT?
You can learn how to sign up for VAT on the GOV.UK website. Most of the time, you can do it online. If not, you need to get a form called VAT1 from the tax office’s helpline.
When you sign up for VAT, you will also join something called ‘Making Tax Digital’ for VAT. You have to follow its rules unless you do not have to for special reasons. So, when you sign up for VAT, you must also start keeping your records on a computer or ask not to join ‘Making Tax Digital’.
Once you’re signed up, you must include VAT in your prices and fill out VAT forms regularly. You also need to keep certain records when you’re signed up for VAT. The section called ‘Record keeping for VAT’ has more info about this.
payment of VAT or returns
Businesses usually fill out a VAT form every three months. They have to send it in and pay any VAT they owe within 1 month and 7 days after the quarter ends.
If you are registered for VAT, you subtract the VAT you have paid on things you have bought from the VAT you have charged your customers. You do this every time you fill out a VAT form. Then, you pay the difference to the tax office. If you have pay more VAT than you have charged, the tax office will give you the extra money back.
If using a computer is hard for you, maybe because of a disability or bad internet, you might not have to file your VAT online. The tax office can help you find another way to do it. You should talk to them if you need this help.
Penalties for late payment or late filing
If you do not follow the VAT rules, you might have to pay a fine. The fine depends on what you did wrong.
If you send in your VAT form or pay your VAT late, the tax office (HMRC) will probably make you pay a fine. How much you pay depends on if it was before or after the end of 2022, because the fines changed.
You can learn more about the fines and interest for late payments on the GOV.UK website.
If you had a good reason for making a mistake, you might be able to argue against the fine.
VAT schemes in a simple way
Based on what your business does and how much you sell each year, you might be able to use an easier way to handle VAT. Here is a quick look at the common VAT plans for small businesses and where to get more info. There are more VAT plans too, and you can read about them on the GOV.UK website under ‘Different ways to account for VAT’.
How to cancel VAT Threshold 2023 registration?
If you need to cancel your VAT registration, here’s a simple help on how to do it:
- You can end VAT registration online if your business has stopped trading, isn’t part of a VAT group, or if your sales are below £83,000.
- Use the Government Gateway website to cancel online. You will need your user ID and password.
- If you can’t cancel online, fill out the VAT7 form and send it to HMRC.
- HMRC will confirm your cancellation within 3 weeks. Stop charging VAT from the cancellation date and keep your records for 6 years.
Remember, if you cancel but HMRC finds out you should still be VAT registered, they’ll sign you up again and you’ll have to pay any missed VAT.
Questions
What is VAT?
VAT, or Value-Added Tax, is a tax on goods and services that businesses add to the price of products they sell.
Who needs to register for VAT Threshold 2023?
Businesses with sales over some VAT Threshold 2023 must register for VAT. You can also register voluntarily if your sales are below this limit.
How do I register for VAT?
You can usually register online through the government’s tax website or by filling out a paper form if necessary.
What is a simplified VAT scheme?
It is an easier way to manage VAT for small businesses, with less paperwork and simpler calculations.
How often do I need to file VAT returns?
Most businesses file VAT returns quarterly, but the frequency can vary depending on the scheme you’re in.
What happens if I file my VAT return late?
You might have to pay a fine or penalty if you file late or make a late payment.