VAT is the standard tax on goods and services in the EU though there are items that are exempt or zero percentage. Since its inception forty years ago VAT has proved a baffling subject for many, and an irritation for others.
Anyone can voluntarily register for VAT and there are some valid reasons for doing so but there is no legal requirement to register unless the business has a turnover of £77,000 in taxable goods. Everyone aspires to success so it is worth looking at VAT when starting a business but not necessarily registering. Whatever the business the assumption is that it will be selling a product or a service and in most, but not all cases, that sale will incur VAT.
Any individual, company, group or charity can register; an online business is no different in legal terms than an ordinary company as far as Her Majesty’s Revenue and Customs (HMRC) is concerned, “the VAT man.” Businesses register if they earn money, if they provide membership benefits or charge admission; there are several definitions but they involve regular rather than sporadic activities such as a “one off” car boot sale. They are expected to do a regular return and submit a cheque for the net amount due after VAT on purchases is deducted from VAT on sales with that return. “The VAT man” reserves the right to audit those returns.
Anyone below £77,000 need not register but there may be advantages in doing so. They may trade in zero rated goods yet purchase goods that bear VAT; that VAT can be claimed back if they have voluntarily registered. Similarly it may be possible to claim back VAT in setting up costs even if you have no immediate prospect of the minimum required turnover.
HMRC requires everyone registered, voluntarily or otherwise to maintain complete records and to submit them on a regular basis. That is generally quarterly and it is worth asking for advice on the subject when considering setting up a business of any kind, exclusively online or not.
Contrary to popular opinion HMRC is extremely helpful for anyone needing help on VAT. There are a series of brochures and online information available to study. Not everyone understands the intricacies of finance and tax; it is not a prerequisite for setting up in business but it is certainly essential to get help if those subjects are unfamiliar.