VAT Registration for Your New Business

Many people never think about Value Added Tax, or VAT. It is generally either applied automatically or absorbed into the price of goods and services, meaning that the average consumer seldom has cause to consider it.

However, VAT registration may well be a necessity for your business – and even if you are not obliged to register, it is something that you should seriously consider.

VAT Basics

VAT is added to the vast majority of goods and services, and is charged at two separate rates. The basic rate of 17.5% applies to most goods and services, while others (such as sanitary products or utility bills for premises occupied by charitable organisations) attract a charge of 5%.

If your business buys goods or pays for manufacturing, you are likely to be attracting a significant total VAT bill. This is certainly true of many photography businesses, as they are required to buy consumables, equipment and so on.

VAT registration can be financially beneficial. When you pay for goods or services, the VAT portion of the bill is known as input tax. As a VAT registered company you will also be required to charge the tax on goods and services that you provide; this is known as output tax.

If, at the end of the financial year, your output tax exceeds your input tax, the Inland Revenue will ask for the difference. If, however, your input tax is greater than your output tax, they will refund you the difference. Clearly, this can significantly reduce the impact of purchases on your business.

Registration Process

There are two ways in which VAT registration might occur. The first of these is compulsory registration. If, in the last twelve months, you sold goods or services with a value that totals more than £67,000, you have an obligation to register for VAT.

You can either fill out the registration for your photography business yourself, or you can appoint an agent to carry out the process for you. If you choose the latter option, you must authorise a third party to do so by completing Form 64-8, available on the HMRC website.

There are certain instances, however, in which it may be beneficial to register for VAT even if your income does not exceed this threshold. If you forecast that your output tax will exceed your input tax, then VAT registration for your photography business may well still be a good idea.

However, you should remember that VAT registration means a considerable amount of extra work; you must keep detailed VAT accounts, and make a regular return. You must also understand that there are significant financial penalties for those who fail to make their return on time. Furthermore, HMRC can check your accounts in person at any time; as such, you should be prepared for a visit from the tax man.

VAT registration is not necessary or desirable for every business. It is vital that you seek advice from an accountant before making a decision regarding your VAT liability. HMRC also have a telephone help-line, where they will be able to offer further general information.