We’re here to help you understand what VAT is, and whether your e-commerce business needs to register for VAT.

What is an online marketplace?

An ‘online marketplace’ sounds self-explanatory – a marketplace that’s based online, but for a business to officially call itself one, it needs to hit a specific criteria.

For HMRC, an online marketplace is a business that has a website, app, or both that manages the sale of goods to customers. There are also conditions based on how the goods are listed, and how involved the business is in selling those goods.

What counts as an online marketplace

To qualify as an online marketplace the platform must:

• Set the terms and conditions on how goods are supplied to customers
• Be involved in either authorising or facilitating customers’ payments
• Have some involvement in either the ordering or delivery of the goods

If you’re still scratching your head at what a marketplace is, think of sites like Amazon, eBay, and Etsy.

They host a range of independent sellers and businesses but also set the terms and conditions, handle the payments, and are often involved in the shipping process at some point.

What doesn’t count as an online marketplace

A platform will not be classed as an online marketplace if it only provides one of the following:

• Either the listing or advertising of goods
• The processing of payments for the supply of goods to the customer
• Listing the products, but either redirecting or transferring customers to another website or app to purchase the goods (without any further involvement)

Why would I use an online marketplace for my business?

Running your business on an online marketplace is a cost-effective way of reaching a wider audience who will often be more comfortable purchasing your products on a site they trust. It’ll mean you pay less in advertising, and you don’t have to run your own website – or have any social media if you don’t deem it necessary.

This could be beneficial if you’re starting out, and you don’t have the time to build a brand outside of selling your goods.

So where does VAT come into selling through an online marketplace?

If your taxable sales are below the VAT registration threshold, you won’t need to register for VAT just because you sell on an online marketplace. But most online marketplaces are VAT registered in their own right, so platforms such as Etsy will automatically add VAT to your taxable sales.

The rate of VAT they must charge depends on what category the item comes under.

What is the VAT registration threshold?

You’ll need to register for VAT if your taxable turnover goes above £90,000 in a 12-month period (this is the current VAT registration threshold) or you expect your turnover to be over the threshold within the next 30 days. This could be for many reasons, for example, you’re hosting a Black Friday sale and anticipate the volume of your sales pushing you through the threshold.

You can also volunteer to register for VAT. Some businesses do this because they expect they’ll reach the threshold eventually, and don’t want it to look like they’ve raised their prices when it finally comes to adding VAT. Other businesses do it so they can claim VAT back on their purchases.

Will the online marketplace need my VAT details?

Yes, online marketplaces are required to ask for the VAT registration number of anyone they think should be registered.

Carrying on with the Etsy example, if your gross sales meet or exceed the VAT registration threshold in a 12-month period, Etsy will ask you to add your VAT number to your Etsy store. Your account will be placed on hold until this is complete.

Being VAT registered means all the usual reporting rules will apply when you make VAT submissions to pay or claim back any VAT owed.

The VAT rules are different for:

• Overseas goods that are sold directly to customers in the UK
• Goods that are sold from the EU to customers based in Northern Ireland that are not registered for VAT in the UK
• If you move any goods between Northern Ireland and the EU

It’s worth noting the VAT threshold is based on all of your income, so if you sell on both Etsy and eBay, and your total taxable turnover from both sites is above the threshold, you’ll need to register for VAT.

All VAT-registered businesses must add VAT onto the goods and services they sell which qualify.

How do I register for VAT?

Registering for VAT is fairly simple, and most businesses can register online.

Before you can register though, you will need a Government Gateway user ID and passport to hand, as well as information about your business. For example, if you run a limited company you’ll need to fill in things like your company name, bank details, and turnover.

Keeping VAT records

Keeping VAT records is a legal requirement, and once you’re registered you’ll need to make VAT submissions to tell HMRC about the VAT you’ve charged to customers, as well as any VAT you’ve paid.

You’ll need to keep your VAT records for 6 years from the date any goods are sold, so it’s well worth investing in good bookkeeping software will ensure you don’t lose any important documents.

 
Need some help on VAT? Check out our VAT guide for more expert advice!

The post Do I Need to Register for VAT if I Sell Through an Online Marketplace? appeared first on The Cheap Accountants.

Many self-employed people work from home, enjoying the flexibility without needing to pay for extra work space, but this does mean household bills can mount in relation to business use.

Claiming allowable expenses on home utilities directly related to your business operations is an efficient way to reduce your tax bill – but what about VAT?

Here, we take a look at the kinds of bills you can reclaim VAT on if you run a VAT-registered business from home.

Claiming VAT on bills when working from home

The great news is that you can reclaim VAT on certain costs when working from home, provided your business is VAT-registered.

This means the cost in question needs to be directly related to the operation of your business, even if it’s only part of the full bill or expense.

For example: You have five rooms in your house and your home office is one of them, so your home workspace takes up roughly 20% of your floor space. This means you can reclaim VAT on 20% of applicable bills and expenses.

Plus, if your business incurs additional costs as a result of you working from home, whether partially or full-time, you can reclaim the VAT on these too, along with a proportion of your home workspace running costs.

This includes things like:

• Office furniture
• Some decoration costs
• Security expenses associated with protecting sensitive data
• Some office cleaning and maintenance costs

You will need to be able to prove that the costs you’re looking to reclaim VAT on are a ‘fair and reasonable’ part of running your business. The best way to do this is by maintaining thorough financial records and storing valid VAT invoices, receipts, and other relevant paperwork.

How do I reclaim VAT on work-from-home expenses?

You can claim VAT on allowable expenses through your VAT submission, but there are a few specific things to know depending on how your business is structured.

Limited companies and directors

If you are registered as a limited company and want to reclaim VAT on qualifying home-work expenses, you need to ensure the costs are paid by the business and in the business’s name. This is because the company is a separate legal entity to you as an individual, so it can be a bit complicated.

You might instead claim your expenses back as a company director, with the company reimbursing you for the cost.

Sole traders and partners

If you are registered as a partner or sole trader, HMRC counts your personal finances the same as your business finances. So, you’ll just need to be able to identify and prove what proportion of costs incurred are directly business-related for VAT purposes.

Don’t forget: In order to reclaim VAT on bills if you work from home, you need to be a VAT-registered business. This applies no matter how your business is registered or legally structured.

Registering for VAT

VAT registration is compulsory if your taxable turnover meets the legal threshold, which is currently £90,000 within a 12-month period.

You can register for VAT online or by post and the process is pretty simple. You’ll just need to make sure you have the following to hand before you start:

• Your Government Gateway login details
• Business registration details
• Business bank account details
• National Insurance number or Unique Taxpayer Reference (UTR) number

If VAT registration isn’t mandatory for you just yet, there is still an option for you to register for VAT voluntarily.

Voluntary VAT registration

Some business owners choose to register for VAT voluntarily, even if their current VAT taxable turnover hasn’t yet reached the official threshold of £90,000.

There are a number of reasons why a business owner might opt for voluntary VAT registration, including:

• If you pay for goods or services with VAT added on top (e.g. accountancy or legal fees) you can claim back the VAT you pay. This is known as ‘input tax’
• If your input tax exceeds your ‘output tax’ (the VAT you’ll be required to charge your own customers), you can reclaim the difference. So, if you pay VAT on a regular basis but don’t charge it very often, voluntarily VAT can be a great way to become more tax-efficient.
• Being VAT-registered can help make a business appear larger, more established, and more reputable. This gives new and existing customers confidence in you and also helps you stand out against the competition.
• You are able to backdate claims for goods for up to 4 years and services for up to 6 months prior to your VAT registration date once you’re registered, as long as you’ve kept detailed records and the necessary paperwork.

Sometimes, your accountant may even recommend that you register for VAT before it becomes compulsory.

However, it is important to note that if you do choose to register for VAT voluntarily, you will still need to follow the same processes and comply with the same deadlines as those under compulsory VAT registration.

In other words: just because voluntary VAT registration is your choice doesn’t mean this gets you off the hook with filing VAT returns.

So, if your VAT taxable turnover is still below the threshold and there’s no real reason for you to register for VAT, you might prefer to save yourself the headache – at least for the time being.

 
Are you looking for more expert business support? Head over to our info hub for more news and helpful resources.

The post Can I Reclaim VAT on Bills if I Work from Home? appeared first on The Cheap Accountants.

An example of VAT in action

Let’s say we have a VAT-registered beautician who charges clients £25 per appointment. Based on the standard 20% VAT rate, the beautician will keep £20 for themselves (the business), and the remaining £5 will be paid as VAT to HMRC.

However, if the beautician spends £8 on taxable supplies for this appointment, it means the business has £1.60 worth of VAT.

In this case, the beautician can deduct the £1.60 worth of VAT paid from the £5 of VAT received, and only pays the difference of £3.40 to HMRC.

When does a business need to register for VAT?

A business is only legally required to register for VAT once its VAT taxable turnover reaches the registration threshold in any 12-month period, which is currently £90,000.

Your VAT taxable turnover counts as anything you sell that is not exempt from VAT. Things that are often exempt from VAT include those that are essential to the running of a business, such as insurance costs, staff training, and investment. For more examples of VAT-exempt or low VAT rate items, head over to HMRC’s website.)

You can work out your VAT taxable turnover by adding together the total value of UK sales which are not VAT exempt.

Don’t forget to include zero-rated items too, where the customer is charged VAT, but at a rate of 0%. Zero-rated items still need to be documented on your VAT Return.

That said, there are some business owners who choose to register for VAT voluntarily, and this is typically for two reasons:

• To start reclaiming VAT
• To boost the business’s reputation

How to register a business for VAT

Registering for VAT can seem daunting, but the process is actually pretty simple. Whichever method you choose, you can expect to receive your VAT registration certificate within 30 working days.

That said, don’t be surprised if it takes a bit longer but if you are concerned, you can always get in touch with HMRC to check in.

Top tip

Remember to record your ‘effective date of registration’ somewhere safe. This marks the date from which you must charge VAT on sales, and is the starting point for working out your VAT bill.

Registering for VAT with an accountant

The quickest and most hassle-free way to register your business for VAT is to get somebody else to do it for you. Enlist the expertise of a qualified accountant, and you’ll be well on your way.

You’ll need to provide with some basic information so that they can go through the motions on your behalf. Not only will this save you time and energy, but it also means you can significantly reduce the risk of error or confusion.

Registering for VAT online

If you don’t yet have an accountant for your business, or even if you do but prefer to manage your own VAT registration, the online registration process is fairly straightforward.

First things first, you’ll need to create a Government Gateway ID if you don’t already have one. You’ll then need to sign up for VAT services, and you can link this to your Gateway ID (which makes it easier to sign in for the future!).

HMRC will issue your business with a unique VAT number. Once you have this number, you can then complete your online VAT registration.

To complete the process, you’ll need:

• Your business registration details
• Business bank account details
• National Insurance number or Unique Taxpayer Reference (UTR)

Follow the steps on HMRC’s website and you can’t go far wrong.

Registering through the post

If you can’t register online, there is an option to complete the process via post. Common reasons why somebody might choose to register their business for VAT this way include:

• Applying for a registration exception
• Registering more than one business unit or division under separate VAT numbers
• When joining the Agricultural Flat Rate Scheme

What will happen if you fail to register for VAT?

If you don’t register your business for VAT when your VAT taxable turnover exceeds the threshold, there are several consequences that you should be aware of – most of which amount to a financial penalty.

How much you’ll be fined depends on how much VAT you owe, and how late your registration is. Typically, this type of penalty falls somewhere between 5-15% of the VAT you owe, with a minimum penalty of £50.

Once you register, you’ll need to submit regular VAT-returns – learn more about how and when with our guide.

The post How and When to Register for VAT appeared first on The Cheap Accountants.

Registration for VAT

A business must register for VAT when its turnover in any 12 month period reaches the registration threshold, which is currently £90,000. It is possible to register on a voluntary basis, as this can sometimes be beneficial to the business. For instance, early registration means a business which pays more VAT on purchases than it collects on sales is able to reclaim the difference.

Rate of VAT

There are three rates of VAT – zero, standard and reduced. The standard rate is 20 per cent, while the reduced rate is five per cent. The most commonly used rate is the standard, which is applied to most of the services and goods in the UK.

There are some goods and services that are zero-rated, including food other than hot food in a takeaway or restaurant meals. Other zero-rated items include clothes and shoes for children, newspapers and books, and public transport, along with other items.

The reduced rate is applied to car seats for children, sanitary hygiene products, and fuel and power for domestic use. There are many other items that attract a reduced rate of VAT. Check out HMRC’s guide to different VAT rates, and when to use them.

VAT exemption

There are some goods and services that are exempt from VAT altogether. Among those are insurance services, the provision of credit, education, and most of the services provided by dentists or doctors.

What’s the difference between exempt and zero-rated?

There is a difference between zero-rated and exempt items, although the rate for both is effectively zero. If a registered company sells zero-rated services or goods, it can’t charge any VAT but it can claim back the VAT which it has paid on its expenses. If goods are exempt, no VAT is charged but the company is unable to claim back anything paid on the expenses.

How do I report VAT?

Businesses which are VAT registered must complete a VAT return on a regular basis. This tells HMRC how much VAT you have charged on sales, and how much you have paid on your purchases. This helps them work out whether you need to pay the difference to them, or reclaim it.

Get an instant quote for accounting support with your VAT return, or ask an accountant a free tax question.

The post An Introduction to VAT appeared first on The Cheap Accountants.

We get it… it’s easy for us to say that because we do it day in, day out and us telling you that everything will be hunky dory as long as your accounts are in full working order probably won’t make a VAT Inspection any less daunting.

This can be particularly true for cash businesses or those in industries such as food and hospitality when there is often much more room for deliberate or genuine error when it comes to VAT reports.

Why do I need a VAT Inspection?

You can be reassured in the knowledge that HMRC don’t just run VAT Inspections willy-nilly. There is almost always a reason as to why you (and your business) have been chosen to go under the magnifying glass.

These include:

• Under-declaration of sales
• Anomalous figures that stick out from industry standard like a sore thumb
• Consistently late or wrong accounts
• Incorrect VAT treatment of tips, gratuity or service charges
• VAT returns that don’t tally with the annual accounts submitted

In a nutshell, VAT Inspection is highly risk-based and will typically only be subject to those businesses or business owners who have provoked some form of risk, liability or suspicious activity through purpose or error.

Preparing for a VAT Inspection

What will normally happen is HMRC will get in touch and give you a specific timeframe they wish to see figures for. They will give you an appointment date and then leave you with adequate time to get your affairs in order.

From this moment, you will need to:

• Present all of the information and necessary paperwork in a clear, concise format such as a spreadsheet. A trained finance professional can help with this.
• Highlight and justify any mistakes or holes in your VAT files for full disclosure with HMRC.
• Familiarise yourself with the VAT Inspection process so you know what to expect on the day, as well as before and after your appointment.
• Prepare rough answers to any questions that you might be asked so you aren’t caught off-guard. Again, an experienced accountant will be able to help with this.
• Be able to provide a full audit trail of any transactions that have or haven’t been included in your VAT submission. This is also important should you be called upon by HMRC’s Till Officers who will also want to know more about your till systems.
• Go through your figures two times, three times, four times or however many times it takes to know the figures like the back of your own hand. This way, you will feel more confident when asked to discuss them in great detail.
• Answer any follow-up questions, provide any additional information and make any necessary payments promptly and within the specified deadline to avoid hefty penalties.

If you’ve got a VAT Inspection on the horizon, or you’d just like some professional help in getting the right numbers in all the right places in case one should arise in the future, get in touch with one of our qualified experts.

The post How to Prepare Your Cash Business for VAT Inspection appeared first on The Cheap Accountants.

But even if your turnover is under the VAT registration threshold, your accountant may recommend that you register your business for VAT. Here are five good reasons to register for VAT voluntarily:

Your business deals mainly with other VAT-registered businesses and individuals, and you could reclaim VAT

You’ll have to charge your customers or clients VAT – ‘output tax’. But if you pay for services or goods with added VAT costs, such as legal or accountancy fees, you can claim back the VAT you pay – ‘input tax’. Providing your input tax exceeds your output tax in a given period, you can reclaim the difference from HMRC.

If you regularly pay lots of VAT, but don’t collect a lot (for example, because the things you sell are exempt), then VAT registration could prove pretty useful!

It makes your business look more professional and successful

Other businesses and individuals may (consciously or unconsciously) see your VAT registration as a sign that your business is well-established and successful. You know it doesn’t bring enough in for compulsory registration – but they don’t. This leads on to number 3…

It gives other businesses confidence in you

Some companies prefer not to deal with businesses that aren’t VAT registered. Others just flat out refuse to do so. The inclusion of your VAT number on stationery and invoices may open up new business doors for you.

You can claim back VAT from previous years

Providing you’ve kept proper records that detail the VAT you’ve paid previously, you can claim this back if you still have the goods (or used them to make other goods you still have).

These records should include invoices, receipts, purchase dates and descriptions, plus information of how the items relate to your ‘business purpose’ (i.e. to VAT taxable goods or services that you supply).  You can also claim back VAT paid on services.

There is a time limit though – you can only backdate claims for goods for up to 4 years and services for up to 6 months before your VAT registration date. Also, you should reclaim these previous payments on your first VAT Return.

You will avoid accidentally exceeding the threshold and paying fines

If you know your turnover isn’t too far off the registration threshold, it can be easier to register voluntarily. The registration threshold (currently a taxable turnover of £90,000) applies to a rolling 12-month period – not a calendar or financial year.

This means that if your turnover is anywhere approaching this, you need to watch your figures carefully month by month and calculate your 12-month turnover. HMRC also expects you to register anyway if you suspect or know that you’re about to go over the threshold.

You must register within 30 days of your business turnover exceeding the threshold. If you register late, you must pay what you owe from when you should have registered – and you may have to pay a fine, depending on the amount owed and tardiness of registration.

 If you think any of these reasons could apply to your business and you don’t have an accountant, now would be a great time to hire one – and make the most of your hard-earned profits!

The post Reasons to Voluntarily Register for VAT appeared first on The Cheap Accountants.