Setting up
your business

You only charge VAT - and can only reclaim it on goods or services that your business buys - if you are registered for VAT.

If you are registered, then you must hand over the difference between what you charge and pay in VAT to the government.

You MUST register for VAT if your turnover exceeds (or is likely to) the VAT threshold - currently £68,000 a year (see below).

Remember: if you’re not VAT-registered, you can’t reclaim VAT that you pay when you buy things.

If you have any questions, you can call the VAT helpline on 0845 010 9000 from 8am to 8pm monday to friday.

Vat rates

There are three rates of VAT:

• Zero rate - 0% (EG food, books, children’s clothes)
• Reduced rate: 5% (EG Installing energy rated materials and children’s car seats)
• Standard rate: 15% (but due to go back up to 17.5% at the very end of 2009).

Registering for VAT

You must register for VAT if your turnover over the last year is over the VAT threshold (£68,000 in 2009-10) or you think your turnover will exceed this.

You can choose to register for VAT if you want, even if you don’t have to.

Advantages

The advantages of registering for VAT are that you can reclaim VAT you’ve paid, and you may look like a more reputable supplier.

Disadvantages

The disadvantages are that you have to charge VAT - increasing your prices - and there is more paperwork - you need to send HM Revenues & Customs the VAT you’ve collected (minus what you’ve paid) each quarter. You could join the flat rate vat scheme to reduce the paperwork.

Vat exempt

Some items are exempt (insurance, credit, training, memberships etc), which is when it can get confusing as you can opt out of the exemption.