Whether or not you need to pay Value Added Tax (VAT) as a sole proprietor depends entirely on the turnover of your business. Basically, if at the end of the month the annual turnover for the last 12 months exceeds his £85,000, he must be registered for VAT.
You can optionally register for VAT even if your turnover is below the threshold. Some sole proprietors do this to claim a refund of his VAT on goods and services purchased for their business or to avoid being fined for exceeding the threshold by mistake. choose to do
Below you will find information on how to register for VAT as a sole proprietorship, how much you will be required to pay, the VAT rate, charging your customers for VAT and the MTD for VAT.
Register for VAT as a sole proprietorship
VAT can be registered online with HMRC. Once approved, you should receive a unique his VAT number that relates only to your business within 30 days.
It will be listed on your VAT registration certificate, It also details the date you need to file your first VAT return and the effective date of your registration (the date you start paying VAT).
Your VAT registration is in the name you choose to do business with, whether it is your own name or the name of your business.
VAT rate as a sole proprietorship
VAT has three different levels.
- Standard charge – It’s currently at 20%, which is true for the majority of goods and services.
- Discount rate – Currently at 5%, this applies to a very select set of goods and services such as car seats and home energy.
- Zero rate – 0% applied to most foods and children’s clothing
A complete list of VAT assessments and exemptions can be found here: VAT rates on various goods and services.
(Note – Some items are VAT exempt and input VAT cannot be claimed on the costs used to produce goods with a zero valuation. A comprehensive explanation of this is below. HMRC help)
impose VAT on goods and services sold to customers
I need to charge the VAT element on the sales invoice. For example, if the bill is £1,000 and he adds £200 (20%) to the total price of the product or service, the customer will pay him £1,200.
On a quarterly basis, we prepare VAT returns showing the amount of VAT collected from customers (output VAT) and the amount of VAT paid to suppliers (input VAT).
If the output VAT exceeds the input VAT, pay the difference to HMRC. However, if the input VAT exceeds the input VAT, the difference can be invoiced to HMRC.
MTD for VAT
All VAT registered businesses, regardless of turnover, are required to sign up for tax digitization for VAT. All businesses are automatically signed up unless they apply for VAT exemption. Making Tax Digital is part of a government initiative to fully digitalize the UK tax system.
To be compliant, you must maintain digital VAT records using HMRC-approved software and file quarterly VAT returns.
Three VAT bulletins that provide relevant advice are:
- Notice 700 – VAT General Guide
- Notice 700/1 – Do I have to register for VAT?
- Notice 700/22 – Tax Digitization for VAT
- these can be found here
The VAT Advice Line can help you contact us on 0300 200 3700.
The relevant form is Application for Registration – VAT 1 and can be downloaded in full. here.
If you are unsure, please consult an accountant who can explain your requirements in more detail, assist with your specific queries, or prepare your VAT return.
How to easily track profits?
Accounting software helps you comply with tax digitization for VAT and generally makes it easier to manage your business’s cash flow and profits.
There is a range of providers to choose from. Below, we’ve rounded up three of the best.
References
BEST ACCOUNTING SOFTWARE FOR SMALL BUSINESSES – Managing taxes and accounting has never been easier or more affordable with accounting software for small businesses – find the accounting package that best fits your needs
How to manage your account as a small business – Everything you need to know to prepare your financial statements in the early stages of your business
Tax Benefits of Limited Liability Companies and Sole Proprietorships – Haydn Logan explains the tax advantages and disadvantages of limited company and sole proprietorship status
9 Accounting Software Platforms to Digitize Your Taxes – Here, Mariah Tompkins reviews the accounting software options small businesses can use for digital tax filing.