A Guide to VAT for Start-up Businesses

A step by-step guide to Value Added Tax (VAT) and when you need to register your business for it

A Guide to VAT for Start-up Businesses

When can I charge customers VAT?

As we have already mentioned, most businesses pass on the VAT cost to their consumers to simplify matters and save money. You will be liable to pay VAT on all the supplies you sell from the date you are required to register, rather than when registration is complete, so this is the date on which you should raise your prices to account for VAT.

While your VAT application is processed, your prices should reflect your VAT liability less any input tax that can be reclaimed. You should charge your customers the gross amount as VAT cannot be invoiced as a separate item until a VAT number is allocated. If your company operates on a business-to-business model, ensure you inform customers that proper VAT invoices will be issued once you are registered.

If you decide to hold your prices to avoid losing customers, you will still have to pay VAT to HMRC calculated by treating the sales value and including VAT, which would mean paying HMRC a fifth of the price charged. This is obviously a significant cost, and you should only consider taking such a step if you can really afford to do so.

How do I complete my VAT return?

VAT is usually paid to HMRC at quarterly VAT periods and you can sometimes ask HMRC for VAT periods that fit in with your accounting year.

When registering your business’ VAT return you must remember that all VAT returns must now be filed online, and the amounts paid electronically. Online VAT returns and payments are generally due one month and seven days past the end of the VAT period.

The figures you declare on your VAT returns need to be taken directly from your records, and you must keep these records for six years. You need to show input VAT, output VAT, and the total payments either due to or due from HMRC.

It is absolutely essential you get the amounts of VAT due on your return right – if HMRC finds out they were wrong, it will charge interest and penalties on payments.

If you have sent in a VAT return and subsequently discover that you’ve miscalculated the amounts due, you need to send either a voluntary disclosure letter or form VAT 652 to HMRC. In this, you need to explain why the error occurred, how much you have miscalculated by, and either enclose the payment due or ask for a repayment of VAT (if you have over-declared).

If you have miscalculated the amount by less than £10,000, you can simply adjust this on the next VAT return – just make sure you keep hold of your records so you can easily justify the adjustment if it is queried.

How do I issue VAT invoices?

Once you have successfully registered for VAT, you must issue VAT invoices and retain a copy for your file every time you make a sale to another VAT-registered customer.

VAT invoices don’t apply to the sale of exempt or zero-rated supplies unless they are included in a sale with other VAT-able item – in which case, you need to show separate totals on the invoice.

VAT invoices must include:

  • A unique invoice number
  • Tax point (if different from the tax point then the date of issue)
  • Your name
  • Company address
  • Your VAT registration number
  • Your customer’s name and address
  • Type of supply
  • Description of goods or services
  • Quantity
  • Unit costs and VAT rate
  • Any discounts
  • Total costs excluding VAT
  • Total VAT
  • Total payable including VAT

For retail sales below £250, you can use a less detailed invoice which shows the date, supplier’s name, address and VAT number, a description of the good or service, VAT rate and total VAT inclusive of the cost.

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  1. what is the VAT number for Masat Ltd?

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