Congratulations your business growing!  But although going from Non VAT Registered to VAT Registered is a milestone for your business, it does bring with it more responsibilities.  Here’s the things you need to think about when you make the step from non VAT registered to VAT registered:

Let Your Customers Know

Once you become VAT registered you’ll need to add 20% onto your pricing.  Whilst other VAT registered businesses will be able to reclaim any VAT you charge, it may affect their cashflow planning so it may be appropriate to let your customers know.

Thing About Your Pricing

If you can simply add on 20% to your current pricing, then that’s great because your pricing and margins will remain unaffected.  However if you deal with consumers and individuals who cannot reclaim VAT then you may need to look at how you price for your goods and services.  For example if you run a candle store on Etsy and you need to register for VAT you may not be able to add 20% to your pricing because you will become uncompetitive in the market place and taking 20% out of your sales price may destroy your margins.  You may need to give serious though to how your VAT registration will affect your business.

Set Up an Accounting System

Making Tax Digital kicks in from April 2019 meaning that any VAT registered businesses will be legally required to maintain their bookkeeping digitally and submit their VAT returns electronically.  Get yourself set up on an accounting system like Xero because aside from it being a legal requirement from 2019, it really does make completing your VAT returns so much easier.

If you already have a bookkeeping system set up, then you will need to activate the VAT function and begin to account for VAT from the date of your VAT registration as well as have your HMRC login ID and password ready to enter into the system.

Set Up New Invoicing Templates

Your electronic accounting system will have an invoicing function where you can raise your invoices and e mail them directly to your customers.  However when you are VAT registered you must ensure that the invoices you send out include the additional details, as well as the normal invoice information:

  • VAT rate being used;
  • VAT being charged;
  • VAT registration number;
  • the total amount owed including VAT.

So if you intend to use a manual method of invoicing then make sure you update your template to show the above.  You can find an invoice template here.

Implement a Bookkeeping Process

If you don’t complete your bookkeeping on a regular basis, then decide on what your new routine will be (or consider finding an accountant to do it for you).  When you are VAT registered you will need to submit VAT returns most likely on a quarterly basis.  By create a regular routine for your bookkeeping and filing you’ll have peace of mind that:

  • You have claimed back all the input VAT you are entitled to;
  • Get your VAT returns filed on time and avoid the stress of last minute VAT return filing;
  • Never put yourself at risk of penalties and interest charges.

Open Up A Separate VAT Account

The most important thing to remember when you are VAT registered is that all the money you collect is not yours – you are simply a collecting agent on behalf of HMRC.  To help with managing your cashflow you could consider opening up a separate VAT account into which you move money every time a customer pays you.  This may not be practical if you have a high volume of invoices, but you could find a way to estimate your VAT on a regular basis.  That way you’ll always feel safe knowing your VAT money is set to one side ready to be paid over.

Record Keeping for Supplier Invoices

The worst part of VAT is loosing an invoice which you know you have paid VAT on but can’t claim back because you have misplaced it.  Set up a system for record keeping and get into a habit of putting your supplier invoices in a safe place so everything is ready for VAT time.

Claim any Back Dated VAT

Once you become VAT registered then you can make a claim for VAT on purchases before registration, there is a time limit and the amount you can claim depending on the types of things your have bought. You can find out about How Far Back Can You Claim VAT here.

Whilst becoming VAT registered can feel like a burden, once you create good habits and cash management skills it will feel much easier.  Check out my VAT Basics Questions where you’ll find more helpful advice on VAT Returns, Record Keeping and How VAT Works.