Hi Accordfire,
Just going to try and make use of your knowledge that may be of use to quite a few on here?
V.A.T? When to register and are there any different options available
Good old VAT.
Okay, in a nutshell, VAT registration is mandatory if your turnover is likely to exceed, or will exceed ÂŁ70,000 in the financial year to April 2011. You'll need to register on a form VAT1 (imaginative, huh?)
Under that, VAT registration is voluntary. Benefits to doing this may be if you are making capital intensive purchases - say, for example, setting up an office, paying for materials in advance of a long job that may take you close to the threshold, or if there is another reason it is advantageous to do so (accountant best to advise in this case).
VAT can be paid under different schemes, depending upon your business:
Standard, or Accrual Scheme.
For most businesses registering for VAT, VAT is accounted for at the time an invoice is raised, or received - the tax date. In this scheme, accrued VAT payments are tallied against accrued VAT receipts, and the balance paid either way, depending upon who it is owed to. Effectively, the VAT becomes due the moment you raise the invoice (or correspondingly the moment your supplier raises his invoice). VAT returns are made quarterly, and payments likewise.
Cash Accounting Scheme.
Essentially this works in the same way as the Accrual Scheme, with the primary difference that you calculate your VAT on payments actually made, and invoice payments received. In this case, the tax date effectively becomes the date money was received, or paid out. It can benefit small businesses offering long credit terms most, but again, should be selected on an accountant's advise based on proper knowledge of your business.
Annual Accounting Scheme.
Essentially, only for businesses over a year old, and registered for VAT for at least a year. In this scheme, payments are made monthly for nine months or over three quarters, and are based on the VAT you paid in the last VAT year. It can be considered for companies less than a year old, and will be based on expected turnover (but this will need supportive evidence). Main benefit, just one VAT return needed per annum, and balance paid either way annually, such as for PAYE, or corporation tax.
Flat Rate Scheme.
This is one of those schemes designed to "help" smaller businesses, and which needs to be used with great care. The major benefit I can see lies in those cases where most of the goods you buy in are VAT exempt.
Essentially, you pay a flat rate percentage on your turnover each month. You don't fill in a VAT return, and in this scheme, you do not claim VAT back at all. It is aimed at reducing paperwork in the business, but the rub is that if you have a high level of VATtable purchases, you can't claim them back. The percentage for the flat rate scheme is reduced over the Standard VAT rate, and from memory is around 9-11% at present.
There are a number of other schemes about, mostly aimed at specific markets, such as retail, tour operators, and other fields which have fairly vertical operating characteristics. Most would not apply to our industry.
For a "typical" one man operation, Cash Accounting is arguably the way to go, as invariably it will help most with cash flow - given that most of us pay suppliers on a 30 day account or by cash at the time of purchase, and then watch our customers take their own sweet time to pay us - often up to 90 days or more.
Accrual may work better if you get paid on the nose for all the work you do, and have credit terms with your suppliers. In this way, you can claim the VAT back quicker on goods purchased toward the end of any given quarter before you've actually paid your supplier (helps, again with cash flow if your business is that way round).
The VAT helpline is actually pretty helpful these days - on 0845 010 9000 Mon-Fri 8am -8pm. They've also got a lot of information online at
HMRC VAT.
In most cases, VAT is filed online now - so you need also to register (1) Government Gateway ID (2) For the VAT Payments Service (not just registration) (3) Business Bank account Details which you will use to pay or receive VAT payments.
Hope this is of some help
