Charging VAT Before Receiving a VAT Number
If you’re a business owner in the UK, understanding VAT (Value Added Tax) is an essential part of your financial management. Even if you have an accountant, you must know basics of how VAT works because in the UK law it’s you who is ultimately responsible for charging and claiming VAT and any VAT returns. So don’t ignore your responsibilities and make sure you have certain knowledge and understanding of VAT.
Our accounting blog is for business owners like you, not for accountants. It can help you ensure you do things correctly and fulfil your duties as a taxpayer.
Ok, so let’s talk about VAT.
VAT is a tax charged on most goods and services in the UK, and if you are a VAT-registered business, you must add VAT to your sales invoices and can reclaim VAT on your purchases. However, as a business owner, you may be wondering whether you can charge VAT before receiving a VAT number. In this blog, we will explore this question from the perspective of a UK-based accountant.
Joanna Bookkeeping is a professional practice based in Oxford, providing effective accounting and bookkeeping services. Whether you’re just starting out or have been running your company for years, our accounting team can help with everything from setting up your accounts to tax and VAT compliance, saving you time so you can focus on what matters most, your business.
When do you have to register for VAT?
As a business owner in the UK, you are required to register for VAT if your VAT taxable turnover exceeds the VAT registration threshold, which is currently £90,000. This means that if your turnover for the past 12 months is more than £90,000 or is expected to be over this amount in the next 30 days, you must register for VAT. You can also choose to register voluntarily for VAT if your turnover is below the registration threshold. This can be beneficial if you want to reclaim VAT on your business purchases.
Check out our previous blog When Do You Have To Register For VAT? for even more specialised information and advice on registering for VAT.
Can you charge VAT without a VAT number?
The short answer is no, you cannot charge VAT on your invoices before receiving your VAT number. However, once you receive your VAT number, you will have to pay VAT to HMRC for the period starting from your effective VAT registration date. Therefore, you need to consider this when waiting for your VAT number because you will have two options once you receive it.
➡️Option 1: Reissue your invoices with VAT
Once you receive your VAT number, you should reissue your invoices to your clients to show VAT so they can claim the VAT back if they are VAT registered. You can do this in two ways. The first way is to issue a new invoice, which shows the VAT separately. For example, let’s say the invoice before receiving the VAT number was for £480 (no VAT). You can reissue the invoice as £400 net plus £80 VAT, making the gross amount £480. This means that your client will pay the same amount, but the invoice will show that VAT has been added.
➡️Option 2: Increase your prices to include VAT
The second option is to increase your prices to include VAT. For example, let’s say the invoice before receiving the VAT number was for £480 (no VAT). You can reissue the invoice as £480 net plus £96 VAT, making the gross amount £576. This means that your client will pay more, but the invoice will show that VAT has been included in the price. Makes sure you discuss any price increases with your clients beforehand. No-one likes surprises and it’s not really fair to send a bill with an increased price out of the blue.
There’s no legal requirement to choose one option over the other, but it’s important to discuss this with your accountant to see which option is better for your business.
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What to do while waiting for a VAT number?
While waiting for your VAT number, it’s important to prepare and talk to your clients to prepare them as well. You may want to increase your prices by the VAT rate so that you can reissue your invoices with VAT once you receive your VAT number. This will also help you to avoid any potential cash flow issues since you will have to pay VAT to HMRC for the period starting from your effective VAT registration date and not from when you received the VAT number.
You should also make sure that your invoices comply with VAT regulations. VAT invoices must include certain details, such as your business name, address, and VAT number (once you receive it). Your invoices should also show the VAT rate and amount for each item or service provided. Your accountant can also help you to ensure that your invoices meet the requirements. Make sure you’re aware of what needs to be included on a VAT invoice, so you are ready for changes when your VAT registration number comes through. Just another reminder- you can only show VAT on your sales invoices once you have the VAT registration number.
It’s extremely important to keep accurate VAT records of your sales and purchases because this will help you to complete your VAT returns accurately and on time. If you’re unsure about how to keep accurate records or feel that VAT and other tax-related responsibilities may be over your head, it may be time to collaborate with an accountant or a bookkeeper.
Also, make sure you continue to be up-to-date with your bookkeeping. Lots of businesses stop processing their transactions while awaiting their VAT registration number. This is a huge mistake and can create a massive backlog. As a result, you may end up being late with submitting your VAT return. And bookkeeping for a VAT registered business is more demanding and time-consuming. If you have a bookkeeper, make sure you keep delivering the paperwork to them in a timely manner during this period. Otherwise, they may not have the capacity to do a big catch-up for you at the very last minute.
At Joanna Bookkeeping we support:
✅Start-Ups
✅Small Businesses
✅Sole Traders
✅Limited Companies
If you’re looking for an accountant who comprehends the benefits of professional financial support and accurate record-keeping then look no further than Joanna Bookkeeping. We’re an accounting company based in Oxford but we work with business owners across the UK. Book a call with our Oxford accounting office.
Frequently Asked Questions
No. Only VAT registered businesses can raise VAT invoices to their clients. And only those businesses that already received their VAT registration number. If you are still awaiting your VAT registration number, you can’t issue VAT invoices yet.
You can issue VAT invoices only once you receive your VAT registration number. This means you can’t say on your invoice, for example, £200 plus VAT. While waiting for the number, issue your invoices as normal. You can add a note to your invoices saying that VAT is pending and the invoices will be reissued to show VAT on them. You can increase your prices in the meantime as well to account for the fact that now you are VAT registered. But make sure you talk to your clients first before doing that.
Absolutely! Your business operations don’t have to stop while you’re waiting for the VAT registration number. Just make sure you don’t issue invoices showing VAT on them until you get the number.
You can receive a VAT registration number within 30 days. But unfortunately, some businesses can wait even for 6 months. Make sure you continue doing bookkeeping for your business during this period and you don’t create massive backlogs in your records. The fact that you haven’t received your VAT number, doesn’t mean you aren’t registered for VAT. Receiving your number and your effective date of being VAT registered are two different things.
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