UK businesses unaware of VAT obligations

VAT payment

A recent study has discovered that over three quarters of a million, of the UK’s smallest business owners are not aware of the VAT registration threshold.

This could result in small businesses unintentionally not registering for VAT at the appropriate time thereby putting themselves at risk of penalties. If a business has a turnover in respect of goods and services supplied within the UK for the previous 12 months that is more than the current registration threshold of £82,000 (as of 1st April 2015) the operator must register for VAT if its supplies would be subject to VAT. This is the case even if some of the supplies fall to be zero rated.

Of those businesses that are aware of the threshold, just less than10% have curbed their sales in order to stay under the VAT limit. A reason businesses may wish to remain under the threshold is that they make supplies direct to the public and therefore adding VAT may deter customers from making a purchase.
As a first step, small business owners need to identify whether their products or services are liable for VAT, and at what rate. There are three rates of VAT, 20%, 5% and zero rated. Companies should be aware of the three rate VAT categories and identify what they may need to charge.

Charities can often be unaware of their need to register for VAT. Some mistakenly believe that they are exempted from being required to register for VAT. Unfortunately, this is simply not the case.

Often, business owners are unaware that, in some circumstances, they can register for VAT in advance of actually making any VATable supplies if their intention is to do so in the future. This can be a useful facility if they are incurring substantial amounts of VAT on their set up costs.

It is sometimes the case that business owners believe that once they have registered for VAT, they are entitled to recover all of the VAT that they incur, whatever the nature of the supplies made. Unhappily, this is not true. Every few months I am in the position of having to point out to a newly won client that they have over recovered VAT and will now need to repay some of the erroneously recovered VAT to HMRC. Indeed I have had more than one client that has recovered substantial amounts of VAT following having registered for VAT as an intending trader. They have then continued to recover all of the VAT that they incurred, whilst omitting to charge VAT on their supplies once they began to trade. Clearly, this is not something that HMRC approve of!

If any of the above has struck a chord with you and you feel that you would benefit from having a chat with someone regarding your circumstances, please do not hesitate to contact me on 0845 177 5000 or at

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