3 common questions about VAT

 3 common questions

about VAT & where to start

VAT can be a minefield for anyone who already has a business, or for those who are just starting up and might have many questions about VAT.
But VAT really isn't a scary subject and it isn't difficult to understand. You just need to get informed so you know what it is, and when to take action if there comes a time when you need to start charging it.

So in this short post I'll be answering the 3 main questions people have about VAT, so that you can stop worrying about it.

Are you starting

A UK business?

The information I am sharing here is relevant to businesses in the UK, which is where I am based.

But wherever you are in the world, when you start a business you need to be aware of any sales taxes that might apply to you. Read through the post and then check your government website to see what you need to do.


I'm Naomi

I help people start businesses simply and without stress.

I'm sharing the start up info you need, so it's easy to understand & implement.

If you have a new business question you'd like help with, you can reach out to me here.

the 3 questions...

1. What exactly is Vat?

One of the first questions about VAT is a simple one – getting clear on what it is.

VAT stands for Value Added Tax.

It is a tax that you usually pay as a consumer when you purchase goods or services in the UK. The money raised from VAT goes directly to the UK government (so if you charge it you don't get to keep it!)

There are different rates of tax depending on the category of the item being sold. The most common is the Standard rate, which is currently 20% and has been since 2011. 

So when you buy an item as a consumer, let's say at a shop, the price you pay will already have the VAT added at the correct amount. So it's something that you don't really notice or ever need to think about. You see the price advertised and you pay the amount.

When you purchase goods and services as a business though, the VAT is nearly always shown separately. And this is because as a business you might be able to claim back the VAT charged. More on this in just a moment!

Let's move on to answer the next 2 questions about VAT.

2. Do all businesses charge VAT?

This is one of the questions about VAT that gets asked a lot, especially by people who are just starting their business.

There is often an assumption that all businesses must charge VAT, and so that can put new business owners into a bit of a panic, which might be why you are here reading this now.

The answer to the question is no. Not all businesses charge VAT. And the reason for this might surprise you.

A business only has to charge VAT once their turnover (their gross sales) goes over £85,000 in any one year. And by law you will have to register first.

So, if you are just starting your business and you don't expect to turnover more than £85k in the next 12 months you can rest easy. You don't need to do anything.

If you already have a small business, and your turnover is nowhere near this amount, then you can also breathe a sigh of relief. For now, keep doing what you are doing and just have that figure in your head.

Once you are nearing the £85,000 mark or you expect to go above it, that is when you will need to register for VAT.

3. Can I claim VAT back?

This question is easy to answer.

You can only claim back VAT if you are VAT registered!

When it comes to VAT there are 2 simple rules.

1. You can only charge VAT once you have registered.
2. You can only claim VAT back once you have registered.

As a business owner the thought of claiming back all the VAT you have paid out on products and services might be very appealing, especially if you have been charged the 20% Standard Rate.

Just know that you can only do this once you've registered. There is no other way that you can claim this back. 

a couple of tips for you...

So if you have started or are just starting your business and are nowhere near the £85k turnover threshold requiring you to register for VAT, there are a couple of tips that I recommend you thinking about. 

Firstly, you want to keep records of everything that you buy for your business, including the amount of VAT you've been charged. Keep all your receipts and invoices, because if you later go over the £85k threshold and register for VAT, you will still be able to claim back the VAT you paid on any goods for the last 4 years, and on any services for the last 6 months. That can really add up, so it's definitely worth keeping records of everything you purchase.

There is also another option which could work for you, especially if you find yourself buying lots of goods and services for your business. Not a lot of people realise this but you can actually register for VAT at anytime before your turnover reaches £85,000. This is known as voluntary registration. This means your business would be registered for VAT and as such you are entitled to claim back any VAT that is due. It also means though that you have to charge VAT on everything you sell. And you will also need to do a VAT return every 3 months. So this might be an option you want to explore, and I have more information about this coming very soon.

If you do find yourself registering for VAT, one thing to note is that you can only claim the VAT back for goods and services that you use for your business. You can't claim back items that you have bought for your personal use.

moving forward

with your VAT journey

I hope this has answered a few of your questions about VAT, and put your mind at rest.

There's never any point in worrying about things like this. The things that often make you panic or that lurk in the back of your mind are usually no where near as complicated as you might think.

Moving forward, you can either forget about VAT altogether until you near that £85k threshold, or you can explore the option to register early if you think that suits you.

And if you are reading this thinking "oh crap" because you have gone over the £85k already, don't worry! Just use this link to confirm that you need to register and follow the prompts. The gov.uk site actually make it all really easy.

“The things that often make you panic are usually no where near as complicated as you might think”

I want you and your business to thrive, and for you to not worry about the things you're not yet sure about. I've been where you are and that is why I am working to simplify the start up process.

If this is helpful to you, please make sure that you check back regularly for new content, or better still subscribe to the mailing list. I send out a weekly email with all the latest posts so you don't miss them, as well as tips to help you start and grow your business. 

And if you want to follow a step-by-step process of how to set up your business, scroll down a little further for my course which covers all you need to know (including VAT).

here's to your massive success!

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