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VAT and the startup business

One of the many issues we discuss with people starting out in business for the first time is VAT, the dreaded Value Added Tax.

Should your new business be VAT registered? Consider your expected sales levels and who your customers are. Also think about the expenditure you will be incurring. When you register for VAT you can reclaim VAT on any services incurred in the previous 6 months or any assets that are less than 4 years old that you still have: i.e. fixed assets and stock.

Consider one of the many VAT schemes. Cash accounting is great if you sell to other businesses and have to charge VAT. VAT is only accounted for as you receive the cash or pay it over. However only small businesses can use this scheme – you have to plan for the cash flow issue of when your business out grows the scheme.

The flat rate VAT scheme can be useful but it depends on the rate that has been allocated to your sector and how much VAT you think you will suffer. The scheme is wonderfully simple and there is an additional 1% reduction in the flat rate during the first year of trading. Be careful because many accountants over look this scheme.

Also be careful of property and VAT, which can be a minefield. Talk to an experienced qualified accountant about this area.

The VAT registration limit increases each budget and there is a trap here that everyone must be aware of. The VAT limit covers a 12 month period. This year is any 12 month period. Your accounts might show that in each of two years you kept below the current registration limit, however if your sales were not incurred evenly but were bunched together at the end of one accounting period and at the start of the next then you may quite easily have gone over the limit. This can be a disaster if you get it wrong. If you cannot go back to your customers to recover the VAT then you must pay it out of your profits, and there will also be penalties and interest to pay.

For more information on the above, check out our other blog post on VAT here.

If you wish to discuss VAT further please get in touch.


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