"I am nervously monitoring my sales turnover because I am getting close to the £90K threshold, and feeling a sense of dread. How do I even become VAT-registered? How does it work? My customers will run if my prices go up. It feels better to avoid it and keep the business small". The vicious circle begins. Turning work down and avoiding an opportunity to scale. Running the business becomes exhausting for little return. When a business reaches £90K turnover, it starts to collect VAT (Value Added Tax) on behalf of HMRC. We have a solution! It starts with managing the cash flow, opening a VAT bank account, and engaging help from a bookkeeping professional. How it works The £90K turnover (sales) threshold is rolling. So if after 12 months of trading, you were at £60K turnover, it doesn't fall back to zero at the start of the next year. The threshold could be exceeded early into year 2. Some VAT info is here, including the registration link. (www.gov.uk website) https://www.gov.uk/register-for-vat It works by adding 20% VAT to your sales invoices once registered. This must be displayed clearly, along with quoting the VAT number. For example your fee is £100 + £20 VAT = £120 The £20 VAT belongs to HMRC. This needs to be paid over to them, however, if you have already paid VAT to your suppliers, this is deducted from the VAT bill. Some businesses absorb the VAT and don't increase their prices, and pay over £16.67, however, unless you have a large amount of VAT-registered suppliers to reclaim VAT from, this could end up being a big cost to your business. VAT registration could be considered a sign of success. You might be surprised that your customers are happy to pay your price increase because they can reclaim it off their VAT return. Tidy bookkeeping, cash flow forecasting, and a VAT bank account Business owners often make the mistake of using all money received in the bank. When it is time to pay the VAT bill, it feels like a huge business expense - often not planned for or saved. By putting the 20% VAT into a separate VAT account immediately on receipt, it will be much easier to manage. VAT registration can be a bonus if managed well. The 20% extra sales tucked away in a separate bank account belong to HMRC. When you claim your VAT on purchases, you rarely pay over the full amount - the remainder is yours. Now comes the tricky part. This is remembering to put the money aside, and operating on the net sales and net purchases. Accounting software will help with this, along with good cash flow management - forecasting what (net) sales are coming in, what needs to be paid, and when. Predicting how much money will be in the bank, for example, in 4 months, will help with decision-making. How can a bookkeeping professional help you? As well as registering you for VAT, they can deal with the first return, which is often a VAT refund (reclaiming VAT on assets going back 4 years, and services for 6 months). They are experienced with VAT codes and what can/cannot be claimed. They are also qualified to keep you compliant with Making Tax Digital and let you know when VAT returns are due. We are ready to support your business with bookkeeping and cash flow management, too. There are different VAT schemes. It depends on the individual business and its circumstances, examples are: the standard scheme, flat rate scheme, VAT cash accounting, and annual scheme. Is your business growing and £90K turnover getting closer? We would be more than happy to support you with registration and returns. Send us an email or book a chat today! Lorna