VAT registration tax can be quite intimidating for small business owners, particularly those who already have issues with paperwork and have no idea what they should tell their taxman. What is VAT, then? How will it affect you? If it does, how should you go about with VAT tax registration?
What is VAT?
VAT is the acronym for Value Added Tax. This is charged on majority of sales of services and goods in different countries.
If your business is making sales, you will not charge your customers with VAT unless you have been registered to do so. Sales wherein VAT is normally charged are known as VATable sales or taxable sales. Sales exempted from VAT or those not within the scopes of VAT are not considered taxable sales.
You just need to proceed with VAT registration tax if the yearly taxable sales of your business are more than the limit set by the authorities.
Should You Bother with VAT Tax Registration?
If your yearly taxable sales are more than the set limit or these are set to go beyond this limit for the next 30 days, you need to deal with VAT tax registration or also known as compulsory registration.
There are instances when you might want to register before reaching the threshold. It is known as voluntary registration that helps with your cash flow since VAT registration lets your business reclaim input VAT on the costs.
But, if your target customers are small business or general public members who are not VAT registered themselves, it might be good idea that you register voluntarily since you need to charge VAT on your customers that they cannot claim back. It means that your own customers may notice an increase in your prices.
How is VAT Registration Done?
Many people go about with VAT registration online. If your registration application has been accepted, they are going to send you the certificate that shows the unique VAT reference number of your business.
What Happens After VAT Registration?
After you have finished with VAT tax registration, it needs to charge VAT on every taxable sale that this makes to the customers. Output VAT is the VAT being charged to customers.
Your business can also claim back some of this VAT charged by suppliers. Remember that there are several supplies where VAT cannot be reclaimed like entertaining anyone aside from the staff. Input VAT is the type of VAT that you can claim back.
Manage the Period of Transition
You should apply for VAT tax registration from a specific date so most of the time, there is an interim period between this date and the release of your VAT registration and certificate number. You have to charge an output VAT on sales after the registration data. However, until you receive your VAT registration number, you cannot issue the official VAT invoices. During the interim period, you have to add relevant VAT rate, often 20% in the overall value of all invoices from the date of your registration application.
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