Value added tax, or VAT, is an important national matter, and it is necessary that business owners and others understand its implications. Additionally, some business owners are unsure as to whether or not registering for value added tax is recommended or required for them. A working knowledge of the registration process for value added taxing and its details are crucial. Prosecution can be brought against anyone who has been found to have subverted the value added taxing process, and justice will be served swiftly.
Defining A Business
Anyone who owns a business should begin to consider whether or not they qualify for VAT. The definition of a business is fairly straightforward, and it is unlikely to mistake yourself for a business owner or a non business owner if the opposite is the case. If you do happen to be unsure, however, one can be considered to be in business if you earn some sort of income by performing a service for individuals, whether you are self-employed, working independently, or working under a company.
You are also considered a business if you charge a subscription or membership fee in exchange for club benefits or other furnishings to a large group of people. Charities and non-profit organisations are still seen as businesses, though their incomes may be more limited than more financially minded entities. Demanding payment for entry into a certain location or function, such as a concert venue, theme park, or other such event also categorises an organisation or singular person as a business. Obviously you must have been engaged in this practice for a significant amount of time, rather than as a one-off or seldom affair. Similarly, occasionally selling one’s personal items and other infrequent exchanges do not fall into the scope of value added taxing.
When MUST You Register?
Even if you qualify as a business, you may not have to register for VAT if your turnover happens to be less than £67,000 within a period of the last 12 months. This amount is the VAT registration threshold, and is really the most important qualifier of who must register and those for whom registration is not required. If you believe that the yearly turnover of your business will soon reach £67,000, registration is recommended, but not yet compulsory for you.
There are a few other requirements for those who might register for value added tax. If you become the owner of a VAT registered business, you yourself must newly register as a taxable person. From an international standpoint, if you are not located in the UK, but happen to export goods or services to the UK, and the value of these equals or exceeds £70,000, known as the distance selling threshold, you must also register for value added tax. On a related matter, if you import goods into the UK instead, equalling or exceeding the VAT registration threshold of £67,000, you also need to register.
If you happen to own or run more than one business, the income and other financial dealings of all of these businesses combined is what must be accounted for when determining whether or not to register for value added taxing. Legal entities need not necessarily apply for registration. Ultimately, it is the decision of Her Majesty’s Revenue and Customs, or the HMRC, as to whether or not you must register.
Splitting A Business Into Several Entities
You may not attempt to subvert taxation by either treating all of the businesses you own or run as separate businesses, or by simply treating the one business with which you are affiliated as several smaller entities, thus reducing the turnaround to under £67,000 for each respective business. If the HMRC detects this, it will verify that these separate businesses can be taxed as one, and will mandate you to register them as such.
The HMRC is prone to consider many related businesses as a single taxable entity for a number of reasons. If a VAT registered business and a non value added tax registered business exist in tandem, but only sell to like customers (i.e. the VAT registered business only selling to VAT registered customers, the non VAT registered business selling only to non VAT registered customers), this can be seen as a warning sign. Also, if the same implements or premises are frequently used by several entities which pay rent to one owner, then this can qualify as a single taxable person. Launderettes are good examples of this. Lastly, if two businesses operate separately, when they can very simply operate as one, they can be considered a single entity in the eyes of the HMRC. In all cases, if a person does not comply with the HMRC, penalties can be brought forth, and eventually action may be taken.
Of course, it is possible to voluntarily register for value added tax, which is not always a poor choice in certain accounting situations. Who can voluntarily register? Nearly anyone who is not required to register for VAT can still voluntarily register. If your current yearly turnaround, for example, is under £67,000, or if you are just starting your business and have not yet figured your yearly turnover rate, you can voluntarily register.
Distance sellers throughout the EU, mentioned above, are also eligible for VAT registration. Similarly, this also applies to those who are located in the UK but supply products only to those located in the EU, except for the UK itself. However, this only applies if you either are supplied by VAT registered businesses located in the UK or you happen to import products into the UK which are applicable to reclaimed value added tax.
Although most would not want to voluntarily register for any sort of tax, registering for VAT can be beneficial in terms of refunds if one happens to find oneself in certain situations. If you sell zero rated items but frequently purchase standard rated items, you are likely to receive a refund, as your input tax will greatly exceed your output tax. If you sell nothing during a VAT accounting period for one reason or another, you are sure to get a refund. Keep in mind that by registering for VAT at all, you are taking on the accounting responsibilities that come with it, which can be a bit tedious at times.
Do register for VAT if you qualify but have not already, as it will save you, as well as your accountants, a great amount of headaches in the future.