What is a VAT number?

VAT is one of those things in life which affects us all day in and day out, and yet many of us are pretty clueless as to what it actually means.

That is until we enter into the wonderful world of business and find ourselves expected to be au fait with a never-ending number of tongue-twisting acronyms. The mind boggles, but VAT registration, types of VAT, and how you invoice using it are all things you’ll want to scrub up on. 

Sound all too familiar? Don’t sweat it, we understand and we’re here to help with our guide to VAT - what VAT numbers are, whether or not you need one, and how you can get your hands on yours. 

What is a VAT number?

First things first, VAT stands for Value Added Tax, so a VAT number is referred to as a value added tax identification number. 

It’s allocated to businesses for tax purposes when their taxable turnover surpasses a certain threshold (more on this in a mo). 

What this means in action is that businesses registered with VAT can add a VAT price to the cost of services they offer or the products they sell.

Business owners can also claim back any VAT paid on goods purchased from other businesses e.g. suppliers.

Do I need a VAT number?

Working out whether or not your business needs to go through VAT registration is pretty straightforward - if your business’ VAT taxable turnover surpasses £85,000, or will do in the near future, you need to register under UK law. 

What’s my VAT taxable turnover?

Anything that your business sells that isn’t exempt to VAT counts towards your VAT taxable turnover.

Helpfully, the government has put together a list of products and services that are exempt:

• Education and training
• Membership organisation subscriptions
• Insurance, finance, and credit
• Charity fundraising events
• Selling, leasing, and letting or commercial land and buildings.

What if I don’t register?

If your business turns over more than the taxable threshold and you fail to register for VAT within 30 days, for whatever reason, even if it’s totally innocent, you’ll be liable to pay a penalty for failure to notify. 

Voluntary VAT registration

VAT registration, as we’ve seen, is a requirement for businesses who reach the taxable turnover threshold, but for those who don’t, it’s still an option to voluntarily register your business.

Why we hear you cry? Actually, there are a handful of benefits to voluntary registration:

• Avoid penalties - if you sign up before you have to, you’ll avoid an angry letter from the taxman if your turnover increases faster than expected and you’ve failed to register. This could be costly - so by registering early you could save yourself a pretty penny.
• Sell to the big fish - unfortunately, oftentimes the big businesses on the block aren’t willing to trade with smaller ones if they aren’t VAT registered and can’t present a proper VAT invoice. Sign up when you don’t have to and you could reel in bigger fish and boost revenue.
• VAT refunds - by registering yourself you’ll be able to claim VAT on services and goods bought for your business - bonus!
• Reputation - once you’ve signed up you’ll get your VAT number and you can display this for every man and his dog to see. To some, it won’t mean much but to others it’ll show you as an established, credible, and trustworthy business. 

How do I get my VAT number?

You can register for your VAT number online with HMRC. You’ll need a couple of things ready and rearing to go before you get the ball rolling:

1. Your turnover, business activity, and bank details
2. Your registration date (less labour intensive!)

If this sort of thing is really not your bag, remember you can hire an external agent to do it all for you and leave you to get on with the running of your business. 

How long will it take?

Once you’ve completed the form you can expect to receive your certificate within 30 days although this may vary depending on whether HMRC needs to clarify any elements.

You won’t get a physical copy but will find your certificate within your Government Gateway Account online.

When do I start charging VAT?

Listen up because this bit’s important and often the hurdle most businesses fall down on.

You are expected to start charging VAT from the date you register for your VAT number.

Don’t fall into the trap of assuming you’ll need your VAT number before you can make the change - do it with immediate effect.

Good to know: while you’re expected to charge VAT you cannot issue VAT invoices during this window.

What do I do when my VAT number arrives?

Once your VAT number arrives you’re officially VAT registered and need to do a few things:

1. For all the products and services you sell that aren’t exempt, you need to start charging the standard UK VAT rate of 20%.
2. Pay VAT on all the products and services you purchase from other businesses.
3. File VAT returns online every quarter.

The aim is to ensure the amount of VAT you pay and the amount of VAT you charge balances out. If there’s a big difference you’ll get this back in the form of a rebate every quarter.

Invoicing with a VAT number

In order to make any VAT claims, there are three government guidelines you’ll need to adhere to for them to be valid.

1. You must issue valid invoices and keep them on file (whether that’s paper or digitally)
2. Keep hold of sales invoices, even if they’ve been cancelled.
3. Store all your purchase invoices for goods and services bought for your business.

Top tip: You’ll find a breakdown of what you can and cannot reclaim VAT for here.

When it comes to your invoices themselves you don’t need to drastically change whatever system you already have in place. 

For example, our digital invoicing solutions beepaid and pay by link both allow you to effortlessly create valid VAT invoices and include a breakdown of any costs with ease. 

Since you’ll need to keep copies of all your invoices for HMRC and any VAT claims, if you’re not already signed up for digital invoices there’s no better time to start - it’ll save you drowning in paperwork or being left out of pocket if an invoice goes missing. 

Instead, you’ll have access to a history of all your invoices at the touch of a button!

Want to upgrade your invoices and go digital? Reach out to our experts today!

Bryony Pearce

Copywriter