VAT

We’ll help you choose a method of VAT settlement in the UK, register your company and steer you through the complex rules and regulations so you can get on with business.

Threshold

You are not obliged to register for VAT until your turnover exceeds £85,000 per year, but you may choose to register voluntarily. Get your VAT wrong, however, and you could face a maximum penalty of 7 years’ imprisonment plus an unlimited fine.

It’s important to make sure your VAT returns are accurate.

Methods

There are four possible ways for you to opt to calculate and pay VAT in the UK.

Each has its own merits, although some are limited by your business VAT turnover (gross VAT-able income). We do not give a definitive description of each method here, just a brief guide. Always consult an accountant for detailed advice.

Cash Accounting Scheme

Good for cash flow

This is one of the two most common methods for UK businesses to calculate and pay VAT.

It is only open to businesses with an estimated VAT turnover of less than £1.35 million in the next 12 months. This method is helpful for cash flow, as it allows you to pay VAT only on invoices paid, not when they were raised.

Accrual (or Standard) Accounting Method

Preferable (and mandatory) with higher turnover

This is the other most common method for UK businesses to calculate and pay VAT.

It is mandatory for businesses with an annual VAT turnover of more than £1.35 million.

You calculate and pay VAT when invoices are raised, not when paid, following the traditional method of accountancy for large businesses.

Flat rate scheme (a fixed rate)

Good for some small businesses

Only available for businesses with a VAT turnover of £150,000 or less.

You pay a fixed percentage of your turnover in VAT to HMRC. The fixed rate is usually determined according to your business sector.

Annual Accounting Scheme

Cut down the paperwork

Usually businesses submit VAT returns and make payments four times a year. This method has the advantage of making only one return per year, and paying the VAT in four instalments, agreed in advance.

Available for businesses with an annual turnover of less than £1.35 million.




Reminder: please note, there are more criteria for each method than mentioned in this brief introduction. Always consult an accountant for detailed advice.