Posted: 2. March 2019 by: Rupert Tennant

VAT For Small Businesses

VAT stands for value-added tax. It’s the amount that you sell your product for, and that’s more than what it costs to produce and sell the product. It’s a tax on what you earn. For most businesses that are the most important tax that you pay and the most important tax a customer pays.

There are a few rates, and it depends on what kind of products you’re selling. Some businesses also need to apply for paying VAT even if all of their products are exempt from it. This doesn’t mean they will pay anything, but they will be in a system.

Who needs to register?

There’s a misconception that you need to apply for VAT as soon as you start a small business and many worry about how this will affect their company while they are low on cash and don’t have a customer base. This, however, isn’t true.

There’s a threshold for when you need to register, and it’s based on your yearly turnover. It’s a turnover for the period of 12 months after you’ve started and it needs to be over £85.000 if you need to register.

Registering when you don’t have to

Many businesses register for VAT even though they are below this threshold. This is because there are numerous benefits for VAT payers and you can use them even if you’re below the threshold. Registering is a formal process, and it will mean you need to send the VAT return to HMRC for every year.

One of the main reasons to do so is if you work with a variety of businesses that all pay VAT. If they do, that means that the products you’re buying from them are a business expense for you and it’s easier to reclaim and refund if you’re both in the VAT system.

Sole traders

There’s often a false idea that sole traders don’t have to register for VAT. Sole traders are often small businesses and one-man shows. That doesn’t mean they don’t have to register but that they don’t make enough money to register.

There are very few sole traders that make enough to qualify for paying VAT. However, they too can benefit from the system even if they don’t pay into it. If you think your business will reach that level soon, you should register for VAT as well.

How to do it?

There are two ways to apply for VAT. The simpler one is to do it online on your HMRC profile which will be your go-to page for all things related to taxation. The second is to do it via mail. The second options take longer, and there’s a (small) chance that it will get lost.

What you need to provide to HMRC are documents that will showcase you’re the owner of a business and what your turn over is in the last 12 months. All of this can be done by an accountant or any other employee of yours, but you’ll need to a document proving that they work for you.

How does it work?

Once you get your VAT number, you’ll get to use it to register to site on which you’ll fill in your tax return for the year. This is done 4 times a year because the year is divided into quarters form the viewpoint of HMRC at least.

When you provide invoices and bills to your customers, you’ll need to add VAT value to them. That’s mostly 20 percent, and when you do it, the clients and the customers will know how much of their money goes to the government.

Asking for help

There are a lot of ways to get help about VAT. Firstly, you can always contact HMRC and ask for their help. This can be done via mail, phone, online chat, and it can be done pretty much at all times, including the holidays.

The second option is to ask your own accountant about the process because they will know the rules better than you. The only problem with is that you’ll need to pay for their services. It’s a worthwhile expense.


VAT is a value-added tax. That’s the tax you pay on the difference between the price of your products and the cost you’ve put into them. It’s the most straightforward and transparent tax. It’s a tax that’s only paid by the businesses that have a turnover of more than £85.000 in 12 months.

The VAT rate is set at 20 percent, and it allows you to easily calculate how much you’ll earn and how much you need to add to the bills and invoices for your customers.  It’s also a good idea to register if you’re below the threshold since you can use the refunds.