Building Good VAT Habits

Value Added Tax (VAT) is a haunting figure for many businesses throughout the year. No one loves doing their tax return and there is a tendency to put off key admin tasks until the last minute. But equally, no one wants a nasty surprise when it is time to file your tax return. By building good VAT habits early and exercising solid VAT management, you can save yourself time, money and stress.

Here is a guide to registering for VAT, the types of VAT to look out for, and a set of habits to get into your routine for a successful tax year. Make them your New Year’s Resolutions, and next year you’ll eliminate the end-of-year scramble for good.

How to Register for VAT

Getting registered for VAT might feel daunting, but it’s a crucial step for many businesses. If your turnover exceeds the £85,000 threshold, you’re legally obligated to register. But even if you’re not quite there yet, it might still be worth considering voluntary registration. Why? It could give your business a more professional appearance and allow you to maintain cash flow and reclaim VAT on your purchases.

Here’s how to get started:

  1. Consult the HMRC website – It’s as simple as filling out an online form. Make sure you have your company details, bank account information, and your National Insurance number handy.
  2. Decide on your VAT accounting scheme – Standard, flat-rate, or cash accounting? Each has its own pros and cons depending on your business type and cash flow.
  3. Keep an eye out for your VAT registration certificate – It’ll usually arrive within 30 working days. Once you have it, you can start charging VAT on your sales and reclaiming it on your purchases.

Think of it this way: registering for VAT is like getting your business into shape for the long haul. It might take some effort upfront, but it’s worth it to avoid financial penalties and unexpected bills.

Understanding VAT Rates

Once you’re registered, the next step is understanding VAT rates. This is where it can get tricky, but here’s a helpful breakdown.

In the UK, there are three main VAT rates:

  • Standard rate (20%) – This applies to most goods and services. If in doubt, assume this is the rate you need.
  • Reduced rate (5%) – This covers certain items like home energy.
  • Zero rate (0%) – Some items, such as most food and children’s clothing, don’t have any VAT. But you still need to record these sales in your VAT return.

VAT Management Habits You Should Start as a Sole Trader Business

For sole traders, building good VAT habits is the smart way to grow your business. It’s easy to let VAT management slip down your to-do list, especially when you’re juggling all the other aspects of running a business. But trust us: a little organisation now will save you a mountain of stress later.

Keep Your Records Up to Date

Don’t wait until the end of the quarter to organise your receipts and invoices. Make it a habit to update your records regularly. Not only will this make filing your VAT return easier, but it will also give you a clearer picture of your business’s financial health.

Set Aside Money for Your VAT Bill

Though it may seem obvious, it’s a habit many overlook. Remember, the VAT you collect on your sales isn’t your money – it belongs to HMRC. Setting up a separate account to squirrel away your VAT payments can help ensure you’re not caught short when the bill arrives.

Review Your VAT Status Annually

Circumstances change. What made sense when you first registered for VAT might not be the best option now. Take the time to review your VAT scheme each year and make sure it still suits your business needs.

Consult a Professional Small Business Accountant

If you’re looking for advice and guidance through the process of tax returns for your business, you’ll want a trusted accountant by your side. Stonehouse’s small business accountant services in Peterborough are highly regarded, helping you manage everything from bookkeeping to VAT, tax returns and bookkeeping. Let us handle the numbers and find the best solution for you, so you can soothe your brow and focus on your work. Contact us today to discover how we can support your journey.