Don't Let VAT Registration Catch You Off Guard

This guest article by Les Howard, a renowned VAT specialist and two-time Ceres Podcast guest, sheds light on the history of taxation—from ancient times to modern VAT. Curious to hear more from Les? Check out episodes 181 and 186 of the Ceres Podcast, where he joins Stelios for insightful discussions. For more, follow Les Howard on LinkedIn.

Within the retail catering sector, registration for VAT is important. This is because non-compliance can be extremely costly. The VAT registration threshold is currently £90,000. This is the value of supplies made, not profits achieved.

Application for registration for VAT is an online process. You will need to provide details of your business, contact details, and other information. 

Most important is the date of registration for VAT. In most cases, you will choose the obligatory date for registration. You are required to notify HMRC within 30 days of the end of the month in which you exceed £90k, and then you are registered from the start of the next month. For example, if your turnover exceeds £90k in the 12 months to June, you will register with effect from 1 August.

At the time of writing, HMRC generally processes an application and issues a VAT number within 2-3 weeks of a successful application.

When a retail caterer hits the threshold, his profits will drop! Do plan for this. Don't wait for your turnover to reach £90,001. Once you hit £70k, or £1,350 per week, start crunching the numbers. Your profit will reduce immediately, so you need to manage that.

Here are some practical matters:

• Pre-registration input tax on assets. When registering for VAT, you cannot expect to recover VAT input tax on purchases that have already been made. The good news is that you can. This covers goods purchased up to four years previously, as long as they remain on hand, plus services in the previous six months. Fuller details are in Notice 700, chapter 11.
• Regular input tax on overheads, food packaging, etc. This VAT is recoverable. Make sure you retain purchase invoices, which are usually in the cloud!
• For most retail caterers, most sales are standard-rated. Yes, they are! There may be a temptation to overstate zero-rate sales. This is risky. Don't do it!
• The amounts of output tax will exceed recoverable input tax. So, do you need to increase your prices by 5% or 10% to compensate for this loss?

HMRC provide a range of special VAT schemes for smaller businesses. You might consider the Flat Rate Scheme and/or Annual Accounting. I do not advise using Cash Accounting, which will cost you money! 

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