If your limited company has an income that exceeds or is expected to exceed the VAT a threshold, which is currently £85,000 annually before tax then you must register for VAT. If your company earns over the VAT threshold and you do not register, you run the risk of being fined by HM Revenue and Customs (HMRC).
How does VAT work for limited companies?
The current standard rate is 20%. If your business becomes VAT-registered, you will charge VAT on all invoices you submit to your clients. Each quarter, you work out how much VAT you have collected on behalf of HMRC, subtract any VAT owed to your business (if relevant), and then pay the difference back to HMRC.
When can a VAT registered company not charge VAT?
You must not charge VAT if your business is not registered for VAT. However, VAT registered businesses must charge VAT on their taxable supplies of goods and services and can reclaim the VAT they have paid that relates to the supplies on which they have charged VAT.
Can limited companies claim VAT back?
The golden rule when claiming VAT back is you can claim only on goods and services that are used wholly and exclusively for your business. This means office supplies, computers and equipment, transport costs and services such as accountancy all count if they are solely used for the purpose of your business.
Do you have to charge VAT on services?
VAT is a sales tax that is charged on top of the price of most products and services. Some products and services are exempt for VAT, for example if you are a Locum Doctor you are usually not required to charge VAT on your services, but most other contractors who are VAT registered will charge the standard rate of 20%.
Do you have to charge VAT if business is not registered for flat rate?
You can find out more in our guide to using the Flat Rate Scheme. If your business isn’t registered for VAT, then you don’t have to charge VAT to your customers – but this also means that you can’t claim any VAT back.
Do you have to register a limited company for VAT?
If your limited company does not meet the VAT threshold then you are not required to register for VAT. However, there are a number of companies that voluntarily register because it can be advantageous for their business.
Can a limited company claim VAT on invoices?
When looking for contracts, many businesses expect that your limited company will be VAT registered. Just as you are able to claim back the VAT you have incurred, your clients will also have the opportunity to claim back the VAT on your invoices – so they won’t be put off by the extra VAT charges.
