What to do after registering for VAT?

Registering for VAT can be an administrative and time-consuming process so finally receiving confirmation of your VAT registration number can bring a sigh of relief. However, there are then several actions that should be taken to ensure a smooth transition from being non-VAT registered to a VAT registered trader.

In this article we have outlined five of the most important steps that should be taken once registering for VAT, and we cover why it is important to complete these processes sooner rather than later.

1. Link your VAT registration to your online Government Gateway account

Although HMRC can automatically link a VAT registration to your business’ Government Gateway account, this is not always the case. Once confirmation of the VAT registration is received, the first point of call is to link your new VAT registration number to the Government Gateway account.

Linking your VAT registration to your online business account is an essential step, as the Government Gateway will outline your VAT return deadlines and allow access to submit returns accordingly. Linking your VAT registration number to your Government Gateway account also allows you to complete other processes such as acquiring a VAT certificate, arranging a direct debit to pay VAT liabilities, and authorising VAT agents that can prepare and submit returns on your behalf.

Additionally, if your business will be involved in the import and export of goods, you will be required to subscribe to the Customs Declaration Service via the Government Gateway account to access import VAT recovery documents.

2. Confirm the VAT treatment of your supplies

From the effective date of registration, you are required to apply the correct VAT treatment to supplies you make – the treatment of your supplies will have a direct impact on your VAT recovery position.

You should have already completed an exercise to review the sales you make and the associated VAT treatment that should be applied, in order to confirm the liability or right to be VAT registered. Going forward it is then important to ensure that all those involved with raising sales invoices know the VAT treatment to apply and that it happens correctly. A review of customers and the VAT treatment to apply should be included with this work, to identify any potential issues you may encounter (i.e. supplies made to overseas customers may not be subject to UK VAT at 20%).

In our experience, some of the highest value penalties we see are due to the incorrect treatment of supplies, as these errors often go unidentified for an extended period of time. Ensuring the correct treatment is applied immediately upon registration is the best way to reduce the risk of penalties for incorrect treatment.

3. Accounting for VAT while waiting for a VAT registration number to be issued

Due to current processing times at HMRC, it may be the case that HMRC issue the VAT registration number after the effective date of registration has passed. This begs the question as to how to manage VAT without that number as businesses are unable to issue VAT invoices until the VAT registration number has been received.

There are several options available to manage this position. Which one is best for your business is dependant on several factors, such as cash flow, customer base, and number of transactions and each needs to be considered separately.

With respect to purchases, you should start collecting VAT invoices in respect of all costs incurred since the date of registration. For purchases made before that date, input tax is reclaimable on services received within six months prior to the effective date of registration and within four years for goods purchased which are still on hand at the point of registration. For those historic purchases we recommend a review of them to collect VAT invoices where possible.

4. Understand and outline your VAT return process

Understanding how you will prepare your VAT returns is a crucial part of being VAT registered. Making mistakes or having issues with your VAT return preparation and submission processes increases the risk of errors such as VAT not being accounted for properly, which can lead to penalties being issued by HMRC.

You will need to identify the information that needs to be included in your VAT return workings, consider where this will come from and how it should be recorded. Consideration on how you will then compile your VAT return workings in accordance with HMRC guidelines and regulations is needed, particularly the need to keep digital records and links.

We would suggest that once these factors have been identified, a process map is created to ensure that VAT returns are prepared consistently going forward. This is important because it should allow for easy and early identification of errors plus reduce the risk of omitting data from the VAT return. This is also beneficial to have on hand should HMRC complete a review of your VAT return at any point, as it will demonstrate that care is being taken, which is a condition used to determine penalties.

5. Complete the set up for VAT return submission

The final step we would suggest to newly registered businesses is to make arrangements as to how the submission of your VAT returns will occur. HMRC’s progress to becoming a “world leading digital tax authority” requires VAT registered businesses to submit their VAT return though API bridging software. This is mandatory as part of the Making Tax Digital (MTD) agenda, businesses can no longer submit their VAT returns manually.

Failure to submit your VAT return though compliant software alone carries the weight of a flat £400 penalty. Hence arranging for submission through compliant software ahead of time mitigates the risk of incurring non-compliance penalties, and ensures the processes are in place to submit the return during the inevitable rush around VAT return deadlines.

How we can help

We offer a wide range of services, from advice on VAT treatment of supplies, to supply chain set up and support, and VAT return preparation, review, and submission.

If you think that these services could be beneficial to you and your business, or would like to discuss this further, please contact Rob Janering, or your usual Crowe contact.