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Starting a business and VAT

Starting a Business – The Small Business Guide to VAT

One of the first taxes you are likely to come across when starting a small business is VAT, and it’s one of those things that can sometimes cause confusion or headaches if you don’t understand it properly.

While VAT is generally pretty straightforward, there are some more tricky areas, so in addition to the small business guide to VAT, please do take advice from your accountant.

Does VAT apply to me?

VAT (Value Added Tax) is a tax that is charged on most goods and services supplied by VAT registered businesses in the United Kingdom. If your business turnover is more than the VAT threshold (currently £83,000) you’ll have to register for VAT however, you can register voluntarily below this limit.

If most of your customers are not VAT-registered (ie individuals) then your prices will effectively go up by the VAT rate (20%).

How does it work?

When your business is VAT registered, it has to charge VAT on sales (known as outputs) but can reclaim VAT incurred on expenses (known as inputs). The difference between all the VAT collected on sales minus the VAT incurred on purchases is paid to the HMRC.

How do I register?

The easiest way is to register online, and given that you will have to submit returns online this makes a lot of sense. Registering for VAT will mean a little bit of extra work for you so it pays to get organized from the very beginning. Here are some things to keep in mind:

1. Quarterly returns: When it comes to doing these, you will save a lot of time using accounting software rather than trying to do it on a spreadsheet. You can send in your return online really easily too.

2. Inspections: It is quite likely that you will get a VAT inspection at some point again this will be much easier if all your records are stored in one bookkeeping package.

3. Invoicing: Once you are VAT registered, your invoices need to contain the required information to be deemed VAT invoices. This is another thing you don’t need to worry about if you use invoicing software for your small business.

There is a lot of help available to help you start up and run your business. Find out more at

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