Guide to Going VAT Registered

Going VAT registered is a major milestone for your business but it does bring with it more responsibilities.  Here are some of the things you need to think about as you take this major step so you can get set up correctly, stay on the right side of HMRC and make the admin side of things easier to handle.

Updated 18 August 2021

1. Understand Filing Dates and Deadlines

Once you go VAT registered, you’ll need to begin filing VAT returns. Missing deadlines can be costly and HMRC will hit you penalties and interest so it’s important you make a note of when your VAT returns and payment deadlines are. The easiest way to do this is to log back into your business tax account on the .GOV website where you’ll find all the important information you’ll need.

VAT Return Dates & Payment Deadlines

2. Set Up an Digital Bookkeeping System

Making Tax Digital kicked in from April 2019 meaning that any VAT registered businesses are now legally required to maintain their bookkeeping digitally and submit their VAT returns electronically.  So if you’re using a spreadsheet, you’re going to need to make some major changes with how you do your bookkeeping. HMRC has not approved all digital bookkeeping systems, but most of the mainstream ones are, such as Xero.

If you already have a digital 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.

3. Set Up New Invoicing Templates

When you are VAT registered you must ensure that the invoices you send out include additional details, as well as the normal invoice information. The additional information you’ll need to include is:

  • VAT rate being used;
  • VAT 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 then you can find an invoice template here. But if you invoice from your bookkeeping system, you’ll need to check your invoice templates in the system appear correctly.

4. 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. 

Confused by VAT? Read this guide to find out What is VAT and It Works

To help with managing your cash flow consider opening up a separate VAT account (which is just an instant access deposit account). That way each time you get paid by a customer you can move the VAT money out of your current account so you don’t spend it. 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. 

Separating your money will mean you have peace of mind that you have your VAT money set to one side ready to pay HMRC every time you file your VAT return.

5. Stay on Top of Your Bookkeeping

Create a regular routine for your bookkeeping and filing of your VAT receipts that way you’ll know:

6. Let Your Customers Know

Once you become VAT registered you’ll need to add VAT onto your invoices.  Whilst other VAT registered businesses will be able to reclaim any VAT you charge, it may affect their cash flow planning so it may be a good idea to let your customers know.

7. Look at 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 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 marketplace and taking 20% out of your sales price may destroy your margins. 

8. Join Appropriate VAT Schemes

You may need to give serious thought to how being VAT registered will affect your business and check out VAT schemes available which may reduce the impact of your registration.

9. Claim any Back Dated VAT

Once you become VAT registered you may be able to claim VAT back on things you bought prior to your registration date. Generally you can go back 4 years to claim back VAT on goods you still have and 6 months for services provided to your business. Find out how far back can you claim VAT here.

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About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.