Becoming a company director sounds rather grand. But if you believe that it is just about a grandiose title, then think again.

While it may look great on your business cards, the position of director is more than just a job.

Once you join the board of a company, you must meet certain legal responsibilities and financial duties as well as the daily work of running a business.

According to Companies House, there are more than 4 million limited companies in the UK. Each one includes at least one director (although usually more) and many probably didn’t realise how much work is involved. 

So, before you take the step of becoming a director, consider what the role demands.

What is a company director?

A company director’s job is being responsible for the day to day running of a limited company. They do not necessarily own the business; the company is owned by shareholders.

In some cases, all the directors are shareholders, so they each own a percentage of the company depending on their investment. It is not uncommon for some directors to hold no shares in the business. 

Anyone over the age of 16 can become a director; but if you are banned or have undischarged bankruptcies you cannot become a director.

If you have a certain amount of influence in a company, you may be treated as a director in some circumstances, even if you haven’t been appointed as one.

Limited companies

We have looked at whether sole traders should become limited in an earlier blog. To recap, being limited limits your liability should the business have financial difficulties.

You go from being the business to being an employee; you also become a director of the company even if you’re the sole shareholder. We also looked at how becoming limited involves extra legal filing requirements.  

You can appoint other directors and form a board to help you run the business, especially if you want help in specific areas.

Financial duties

Many companies choose to outsource much of their accounts to an accountant, especially if they do not have a finance director. Ultimately, however, the responsibility lies with the directors. Even if you are director that does not deal with financial matters daily.

Failing to meet these responsibilities could result in fines. These responsibilities include:

Keeping accounting records

Your duty is to make sure you keep accounting records. They need to be well organised so company accounts can be prepared for filing. Your accounts must be a true representation of the financial state of the company.

Submit accurate accounts

As well as keeping management accounts so you can assess your financial position, you must submit accounts by a deadline to Companies House. All directors are responsible for ensuring this happens.

Submit your corporation tax return

Again, directors are responsible for submitting a corporation tax return. Called a CT600 form, it states what you owe HMRC and you must ensure the company pays any liabilities it owes.

Pay salaries and wages

Your duties include ensuring company employees are paid on time and correctly.

You are responsible for ensuring income tax and National Insurance is deducted correctly.

Meet financial responsibilities

Directors need to ensure the company meets all financial responsibilities needed to keep the company solvent.

Legal requirements

Limited company directors are also legally responsible for a number of legal matters. This includes:

Confirmation Statement

The Confirmation Statement should be submitted to Companies House each year.

Register of Personal with Significant Control

Producing a PSC register needs preparing and submitting as part of the Confirmation Statement and filed with Companies House. Your duty is to keep this up-to-date.

Notify Companies House of changes

If you change your registered company address or a director resigns, it is your duty to notify Companies House about such changes. 

Act in the interest of shareholders

Limited company directors must also act in the interest of the shareholders. They must not use the company in their own interests so it is detrimental to the company. If it is considered they have done so, they face legal action.

General duties

There are seven general duties that a company director of a limited company must abide by. They are:

Act within powers

Directors must comply with the company’s constitution and exercise their powers within the business only for the reason they were given.

Promote the success of the company to benefit members

Your position means you have to pay regard to relevant matters, in particular:

• Long term consequences of any decision
• Business relationships and the impact of community operations on the environment
• Company employee’s interests
• Acting fairly between company members and desirability of the company’s reputation for high standards of business conduct

Use independent judgement

While you can take advice from others, directors must use their own judgement to decide whether it is in the best interests of your company to follow it.

Exercise reasonable care, skill and diligence

It is a director’s responsibility to keep well-informed about company affairs. If you have a skill that is relevant to your business, it is taken into account if problems arise.

Avoid conflicts between interests of directors and company

You should look to avoid the potential for conflict of interests between a director and the company. It does not apply if the company consents and if the consent meets formal requirements.

Do not accept benefits from third parties

If a third party offers a benefit because you’re a director of the company, or because you have certain powers as a director, you should not accept these. The company as a whole may accept them, however.

Declare interest in any proposed transactions/arrangements

Before any transaction takes place, directors should declare any interest they have in it, whether directly or indirectly. 

Additional duties of directors include:

• Keeping the affairs of the company confidential
• Acting in the interest of creditors and considering them, particularly if there is a chance of insolvency.

Breaching responsibilities

Any director that does not carry out these responsibilities effectively can be liable under the Companies Act 2006. Failing to make the correct filings to Companies House is the most prominent responsibility.

The official guidance can be found in the Companies House section of the government’s website.

• If you are considering setting up a limited company or want to register your business, we would be happy to chat to you. Just contact us via our website or call 0191 603 1760.

There is no such thing as silly questions, especially if they are accounting questions! It’s true. So many people think that if they have to ask their accountant something, they may appear foolish.

The truth is that you can’t be expected to know everything there is about the accountancy side of the business!

If you have no formal training in accounts, you are bound to discover that some issues arise that you’ve never encountered before.

And if you are just thinking about setting up on your own, you will have lots of questions. In fact, there are questions you should ask your accountant before employing them.

Even if you have been in business for years, life can sometimes throw issues at you that you’ve never experienced before.

So, we at Concept Accountancy are encouraging you to ask us a question about accounting and business finance. No question is stupid, so feel free to ask.

There is quite a bit of jargon in accountancy. Words that are specific to the profession may be often used by us accountants daily, so we often forget that what we say may be a mystery to non-accountants.

Accounting questions we get asked

Chances are that no matter what you want to ask, someone has asked before. And just because it has been asked before doesn’t mean you shouldn’t ask again.

Over the next few weeks we are going to look at many frequently asked questions. But before we do that we’d love to know what questions you might have. We’ll then answer them for you. They can be specific and we won’t publicise your name.

Some questions you have might have been answered in previous blogs. For example, if you are just starting a business, you may want to know what self-assessment is. Well, check out our blog that looks in-depth at the issue.

Questions about starting a business

Some common questions we receive include, “How detailed does my business plan have to be?” “Are there any benefits to writing a business plan?”

We will look at business planning in the next few weeks, but if you have a specific question, please don’t be afraid to ask it.

Limited companies

Directors from limited companies are expected to keep their business on track, but many are experts in their own field.

So, they may not always understand what makes a limited company a limited company. We have looked at what limited companies need to legally file before, but if you have any questions let us know. We plan to look at what is expected of directors and their legal requirements in the future.

Payroll

Payroll sounds pretty simple, but you must master what it is and what is expected before taking on employees. As well as calculating PAYE, you also have to understand National Insurance contributions and auto-enrolment pensions.

Keeping payroll records can be a massive job that takes you away from your own job, so outsourcing payroll might be an option.

Either way, it is something we get asked about regularly and there are definitely no silly questions when it comes to payroll.

We look forward to hearing your questions and sharing more of our knowledge over the coming weeks. If you would like to ask a question, please send an email to info@conceptaccountancy.co.uk

Small business owners trying to manage their own financial affairs could save money by using an accountant that knows small businesses inside and out.

So if you are struggling with bookkeeping, payroll or any other aspect of small business accountancy, consider saving time by employing a qualified accountant. You will save money as well as time, which we all know, is also money!

How an accountant can save you money

Cash flow and financial forecasting

One area that we have looked at before, is cash flow and financial forecasting. If you struggle to manage your cash flow you are more likely to struggle to run your business.

Forecasting your business finances will help you make informed decisions about your cash position. It also helps you spot issues before they become a real problem.

By getting into the discipline of updating your cash flow each week, you’ll better understand how your business works. Our help preparing your forecast means having control of your finances, reducing your need to borrow to make ends meet.

Tax advice

Whether you are self-employed, are a partnership, limited company or otherwise, there are different tax regulations to adhere to.

Tax regulations can often change, too, and failing to keep up to date could inadvertently land you with a penalty.

By helping you keep up to date with tax deadlines and efficient planning, you can make the most of each tax year. Not having to pay penalties for misunderstanding complex regulations means you’ll have more to invest in your business.

Cutting out mistakes

Unless you have trained as an accountant or bookkeeper, it can be easy to make mistakes even if you’re good with numbers!

If a qualified accountant checks your paperwork and streamlines your financial processes it means you won’t make mistakes when submitting it to the appropriate bodies, such as HMRC.

An accountant will also make sure you are claiming for the correct, allowable expenses, which means you won’t end up with a penalty later.

And if you have missed out on an allowable expense, employing an accountant means they will save money you might have given to the taxman!

Freeing up your time

Your time is valuable! It’s a lesson you should learn early on when setting up a business. For every minute you are not working on your business you are effectively losing money.

By handing those tasks to a qualified accountant, it will free up your schedule to invest your time on new clients or building your business relationships.

And because a firm, such as Concept Accountancy, also employs an experienced team, they will do the work more quickly.
As a result, everyone’s time is used more effectively!

• If you run a small business and want to save money, contact us for a free, no-obligation chat and tell us what you need.

Payments on account can be misunderstood, especially if you are newly self-employed. In simple terms, they help spread the cost of your annual tax bill.

People who submit self-assessment tax returns must make these payments twice a year.

In around six weeks (on 31 July), your next payment needs to be made, although this year you can defer it due to the coronavirus pandemic.

If the Covid-19 has left you with financial problems, you may defer the payment up until 31 January 2021. You can pay it at any time between now and 31 January 2021 without having to tell HMRC you are deferring.

We would recommend that if you can afford to you should pay as normal by 31 July.

What are payments on account?

Payments on account is a way for self-employed people to pay their tax bill. The amount is calculated by using last year’s tax bill.

To spread the cost you pay in two instalments. The first is made on 31 January and at the same time you make a ‘balancing payment’, clearing your tax bill for the previous year. The second instalment is due on 31 July.

You are given the sum you need to pay at the same time as you receive details of your January payment. This is calculated by HMRC using the details you present on your self-assessment tax return.

How does it work?

Each payment on account is usually 50% of your previous tax bill. The government’s website gov.uk uses this example:

Your bill for the 2018 to 2019 tax year is £3,000. You made 2 payments on account last year of £900 each (£1,800 in total).

The total tax to pay by midnight on 31 January 2020 is £2,700. This includes:

• your ‘balancing payment’ of £1,200 for the 2018 to 2019 tax year (£3,000 minus £1,800)
• the first payment on account of £1,500 (half your 2018 to 2019 tax bill) towards your 2019 to 2020 tax bill

You then make a second payment on account of £1,500 on 31 July 2020.

If your tax bill for the 2019 to 2020 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2021.

Your payments on account include Class 4 National Insurance Contributions which, until a few years ago, were paid separately.

How to pay

Those completing self-assessment tax returns online have the opportunity to make their payment on account at the same time as their balancing payment for the previous tax year.

If your accountant completes your tax return they advise you of how much you need to pay. You can pay in a variety of ways and the government website explains how.

Reducing payments on account

The income of self-employed people changes each year. So if there is a tax year where you think your earnings will be lower than the previous one, you may apply to reduce your payment on account.

You can do this by logging into your HMRC account or sending a form SA303 to the tax office. You can always ask your accountant if you are unsure.

Think carefully before doing this because if it turns out that your income was the same or higher than the previous year you will likely have underpaid so will have a higher tax payment the following year.

Check your situation

We’re always happy to update our clients about their current situation. If, however, you want to check your own situation you can log into the Government Gateway to check your payments on account.

Once you have logged in (you can also register on the website) select the option to view your latest self-assessment tax return.

Then, click on ‘view statements’ and this will give you all the details you need. This includes payments you’ve already made and if you need to make others towards your next bill.

If payments on account worry you, why not contact us today for a no-obligation chat about self-assessment?

Lacking cash flow forecasts can cause real problems in a business. But many company owners don’t know how to prepare one.

In our last blog, we looked at how important cash flow is to a business. A forecast is a helpful tool to spot issues before they become problems.

Over the years since we set up to help small businesses in and around Newcastle, we have helped many of our clients with a cash flow forecast.

It’s not just small companies who prepare them. Large multinational firms are able to report the outlook to their shareholders using a cash flow forecast. It may sound scary but it’s worth doing.

Forecasting is done on several levels, but we share a simple version to help you understand the basics.

Preparing cash flow forecasts

Most business owners should be able to manage a weekly forecast by using software such as Excel. But it’s also a good idea to work on a rolling forecast, which will predict your position for the following 3 months.

If you have that information, it will make you aware of any problems 3 months in advance. This is crucial if you are a manufacturer. Due to the length of time it takes to sell and build products cash can be tied up on working capital.

Using a rolling cash flow forecast means you update what cash you have available at least once a week. Being able to watch your cash position mean you can spot and handle issues in plenty of time.

Any business that ends up with a crisis is probably not being managed as well as it should be.

Bills and overheads

The overheads of your business are faulty easy to predict over the 3 months. Rent, rates, insurance, etc are costs barely change from month to month. Wages are also pretty similar over a 3-month timeframe too.

Look at your past three bank statements to see what regular fixed costs you have to pay. Check invoices or purchase orders so you know what else needs paying.

Predicting sales with cash flow forecasts

Overheads are pretty simple to predict whereas sales can be more difficult. Manufacturers usually have several quotations out with customers at any one time. Using experience, it should be fairly straight forward to accurately predict how many of them turn into firm orders. They know the length of the manufacturing cycle and the terms of the sales. Using this information will help you predict when you will receive cash from the sales.

Retails or wholesalers that sell on an immediate basis can use historical data to predict their sales. Checking figures with the same week the previous year and adjusting them for your current customers will help your prediction.

Maintain your forecast

Set time aside each week to update your cash flow forecast. After doing that, add another week and modify it with any data that is likely to change, such as a customer telling you payments are being delayed.

Once you’ve inputted the new numbers you can see if it will make any difference to your cash flow over the coming weeks.

You can also add a profit and loss forecast to help you estimate how much tax you’ll pay over the next year too. The more details you have the easier it is to predict your forecast but these basic measures can help you.

If you’d like to discuss your cash flow forecast, you can contact us for more details.

Cash flow is vital to small businesses and is often one of the biggest problems business owners face.

Even before coronavirus, problems getting paid on time was a major issue with some business groups campaigning against late payments. In fact, QuickBooks’ most recent The State of Payments report reveals 44% of customers do not pay SMEs on time.

It says that 38% of SMEs have had cash flow problems that have left them unable to pay their debts.

Most problems for UK businesses are caused by late payments. But falling sales and a lack of thorough cash management also play their part.

What is cash flow?

Cash flow is the total, or net, amount of money being transferred into and out of a business. It can be in physical cash or in other ways, such as bank transfers.

As a business adds to its cash flow it indicates that the company is adding to its reserves. This allows it to reinvest in the company or pay money to shareholders or to pay debts.

Cash flow includes all the cash generated by a company’s main business activities. At a basic level, is the business’s ability to create value for shareholders.

In simple terms, there should be more cash flowing in than flowing out! Cash flow is an important measure of the health of your business but it should not be confused with profit.

Late payments

According to a study by SME Loans, 78% of small businesses have to wait at least one month after their agreement terms before they are finally paid.

It also states that 40% of SME owners say that large companies are the worst offenders.

The Department for Business, Energy & Industrial Strategy says 24% of businesses of all sizes say late payments threaten their survival.

Late payments contribute to 50,000 small business failures a year. As well as the amount owed, it costs businesses three days a month to chase money they are owed, which is about £5,000 in working hours.

The key to success

Cash flow is key for all businesses, which is why late payments cause issues. Without the cash flowing in it is impossible to buy stock or invest in vital equipment.

It can also have an impact on the company’s financial risk profile, which may affect its ability to borrow and raise funds.

How to solve cash flow issues

• The first thing to consider is what you’re spending. If your cash is flowing out more than in, check what you’re buying. It might be tempting to purchase new equipment that you don’t need, or to buy in services that you cannot afford.
• Next, look at your customers’ ability to pay on time. If that’s the case you need to improve your credit control processes. If you do not have the time or resources to do this, then consider outsourcing the task to an expert firm. Sometimes paying for their services is covered by fewer cash flow problems.
• What are your credit terms for customers? If they are out of sync with your suppliers’ terms you can often end up with a cash flow problem. If your suppliers want paying in 14 days but your customers’ terms are 30 then try renegotiating so they are the same.
• Profits are not cash flow, but they do affect it. If you’re not making enough profit you will run out of cash. So consider your prices, increase sales or control your expenditure.
• Lack of cash flow forecasting is essential. We can create these for customers but if you want to try yourself, we will give you some advice in our next blog. Forecasts highlight a lot of issues and if you can see the bigger picture it can help you with your cash flow.

Apart from these basic measures, there is a range of ways solve can flow issues. so if you would like our help don’t hesitate to contact us today.

Running your own business requires dedication. We know because we work with our clients and see how committed they are.

There is a lot to learn when running a small business. And some lessons are the same for all entrepreneurs regardless of business size or whether it’s a start-up or well established.

So, to help you if you’re starting out or need a bit of help with your current business, we’ve put together some tips from what we’ve learnt.

What are your goals for your small business?

One thing we recommend our clients do is to have a business plan. But it doesn’t have to be a 20-page tome with in-depth details of how you’ll spend every hour. Even an outline on a couple of sides of A4 will help.

We recommend putting together a plan for the next 5 or 10 years and then breaking it down into smaller goals. Break these down into one-year goals and be specific about your targets.

So, if your plan is to increase turnover by a certain percentage within 5 years, break it down to work out how many units you’ll need to sell per week.

By breaking your goals down into manageable amounts, the task will feel less onerous. Smaller targets are easier to achieve and leave you better motivated.

Keep your costs down

Some business activities are essential and will cost you money, such as technology or workshop and office space.

But just because something is essential shouldn’t mean it has to cost you. Take a look at your profit and loss account and see what’s really necessary.

If you run a lean business and have no unnecessary expenses, then look at what you are paying.

Can technology costs be reduced with a better phone or IT contract? Is moving your data to the Cloud more cost-efficient than running an old server that costs you every time it breaks down?

The coronavirus pandemic has seen most office-based staff working from home. Could that be permanent? Can you get those employees to split their time in the office so you can reduce its size?

Keeping overheads low is a great tip for businesses to increase profitability.

Don’t be scared to delegate

The most successful of our clients know that they can’t do it all. Owning a small business often means you feel like you have to do everything.

But it can make you and your business less efficient, so consider employees and outsourcing. If you spend too much time doing your books, then speak to an accountant. Focus on what you do well and then delegate everything else.

Find your niche

Some people will say you need to ‘diversify or die’ but that isn’t always the case. Stick to what you do best until you have the resources to bring in new products or services. Trying something new will divert your attention and water down your niche offering.

Stay focused

So with that in mind, the idea is to stay focused. If you concentrate on the main part of your business you will thrive. Innovate your niche and you see a solid path to success.

Keep a focus on your goals too. As we said at the start, if you keep those goals manageable you will stay focused. You’ll also do that if you delegate! It all adds up to putting yourself in the best position possible to make the best of your business.

Speak to us if you would like help on setting goals or give you advice on business success.

Our last blog looked at sole traders becoming limited companies and whether it was a good idea.

If you want to become a limited company after reading our advice, then one thing we mention is your paperwork increases.

So what do you need to file to stay legal? If you fail to look after these forms and taxes you could end up with surcharges.

Of course, we help our clients with these issues but it’s always a good idea to make sure you fully understand what is required of you. It helps you as well as us if you know what to look out for.

Company Accounts and Confirmation Statement

As a sole trader, you will have kept accounts to help you file your self-assessment tax form. Well, you need to do something similar as a limited company!

But rather than just being used for your self-assessment payment, your details need to be put on file with two government bodies.

Once a year you must file Company Statutory Accounts with Companies House. You must also submit them to HMRC.

These have to filed nine months after your ‘year-end’. HMRC receives full accounts while Companies House receives abbreviated accounts. They do not contain detailed reports such as your profit and loss account to help protect the performance of your business.

You must file a Confirmation Statement to Companies House too, which is a ‘snapshot’ of your business. This contains details such as shareholdings, your registered business address and who the directors are.

Limited companies and Corporation Tax Return

Limited companies must pay and file a return for Corporation Tax, which is basically tax paid on your company’s profits. You need to file (or your accountant will) a CT600 form with HMRC.

Before you file it, however, you need to do a ‘tax calculation’. This is calculated taking into account any allowances and reliefs to give you one figure. You then add this to your statutory accounts along with the CT600 form and file it all to HMRC.

Your CT600 has to be filed 12 months after your company’s financial year-end. But your payment has to be made sooner — in fact, 9 months and 1 day after the financial year-end.

We help our clients work out their dates as well as their allowances and reliefs to come up with the final taxable figure.

Payroll and PAYE

Pay As You Earn reports must be made monthly to HMRC. This is how your employees pay their income tax, but it’s a job for limited companies to carry out on behalf of the taxman.

When running payroll, your company takes each employee’s salary before tax and deducts:

• Income tax
• Their National Insurance
• Other deductions, such as pension contributions

All deducted amounts must be paid to HMRC and other relevant parties, such as student loan repayments. A full list of HMRC deductions are available on its website.

You have to then file a report of these figures to HMRC every time you ‘run payroll’ and pay employees.

You might also need to file pension automatic enrolment. This is usually for larger companies and having an accountant is beneficial the larger your company becomes.

Directors’ tax filing

Company directors must also file a self-assessment tax return for their earnings between 6 April to 5 April the following year. As with sole traders, these must be declared by 31 January to HMRC.

VAT filing for limited companies

If you have also voluntarily registered for VAT (check out our blog about that here) you need to submit a return every quarter.

Two things you must do are:

• File the return
• Pay the VAT

The return must be submitted 1 month and 7 days after the end of each quarter.

Becoming limited has its advantages but the extra paperwork may seem overwhelming. If you fear that the extra work will impact on your earning potential, speak to us or your accountant.

While bookkeeping software such as QuickBooks or Xero are helpful for keeping track of receipts, they don’t offer you the advice an experienced can give you.

Making a genuine mistake can often cost you in the long run, so it’s best for an expert to check your paperwork before you file.

While being a sole trader is the most popular choice when setting up in business, turning it into a limited company can have advantages.

There are approximately 3.5 million sole traders in the UK, according to figures in 2019, making the sole proprietorship legal structure the most popular.

Limited companies make up 1.9 million businesses in the country, which means it’s the second most popular structure.

And while the sole trader route may be the most popular, there are times when becoming limited could help.

It’s a question we’re often asked when clients who are sole traders visit our accountancy practice in Newcastle.

What does limited mean?

The name means you have limited liability. You’ll often know that you’re dealing with a limited company as they usually have ‘Ltd’ after its name.

Such a company is, in the eyes of the law, a separate entity to the owner. If you are the only person in the business, you will be classed as an employee.

While some sole traders may feel doing this means they are losing control, there are good reasons for going limited. As we’ve mentioned it means the use of the word limited means ‘limited liability’.

So, if you have business debts as a sole trader or your business goes bust your personal finances and assets are in danger.

Being limited means you are an employee your personal assets and finances are protected should there be a problem with the business.

But be aware that if you apply for some loans, banks can often ask for security from the company’s directors, and that often includes your house!

As well as your finances, consider legal disputes. In the (hopefully) unlikely event of legal action, the company faces the issue, not you. Sole traders face action personally!

Tax

One major advantage is that it’s a more tax-efficient way than sole traders.

This is because a limited company owner and directors can pay themselves dividends instead of a salary.

That means they pay dividend tax, which is lower than income tax. Sole traders, however, have to pay tax on all profits above their personal tax allowance of £12,500.

Dividend changes in 2016 mean that the differences are not as large as they used to be, however. Being paid dividends means some people are finding it difficult to access coronavirus support.

Your company will also pay corporation tax on its profits, too.

Annual accounts

One of the disadvantages is that the amount of paperwork increases!

Sole traders only have to file their annual self-assessment tax returns, whereas limited company owners must:

• Prepare annual accounts and file them with Companies House.
• File full corporation tax accounts for HMRC.
• In theory, file your company’s accounts on your own, it’s best to use a limited company accountant.

Professional status

Although some limited companies are effectively sole traders, having the ‘Ltd’ on your business name can appear more professional.

Some businesses, contractors and potential clients may prefer to work with you as a limited company as their perception is you are more professional.

Knowing you are a limited liability company can make people feel more comfortable to work with you. They can also access your business information at Companies House, which may make them happier if they can see your accounts before offering credit.

There are advantages and disadvantages to both structures, so if you are unsure, why not contact us today to discuss your options.

VAT – or value added tax – is a ‘consumption tax’ that is paid on certain goods and services and ‘taxable supplies’.

Those businesses registered must legally charge an extra 20% to the cost of the product or service they are offering.

They then pay HMRC the amount charged to the customer for your product or service. This means you’re effectively acting as an unpaid tax collector!

Businesses registered for VAT can reclaim what they are charged when they buy products or services. So, there can be some advantages to being registered.

Should I register for VAT?

Not all businesses need to be registered. If your annual turnover is less than £85,000 per year you don’t need to register for VAT.

That means you can’t charge VAT to your clients or customers. But it also means you can’t reclaim anything you have been charged. Individuals cannot register for VAT, so can’t reclaim it as it is only available to businesses.

There are many advantages to being registered if your turnover is below £85,000. So, here is our guide.

Ability to reclaim

One of the best reasons for registering for VAT is that you can reclaim what you pay when your business makes purchases with it added.

It includes what stock you buy to sell to your customers or what you use as part of your service to them. This includes tools and your accountancy bill.

If you use a van or other commercial vehicle you can also reclaim the cost of running it; but not a car. You can also reclaim the cost of items such as computers that you use to help you run your business.

Credibility

Being registered can make your business appear as being better established. It also looks more professional if you deal with a lot of other VAT-registered businesses.

If you’re planning to export it not only increases your credibility but business customers abroad are less likely to buy from you if you cannot produce a VAT registration number.

Also, a growing business that registers voluntarily won’t accidentally exceed the £85,000 threshold, which could end up being costly.

Why you may not want to register

While there are many advantages to being VAT registered there can be disadvantages.

For example, if you are registered you may be less competitive if you’re selling to the general public who cannot claim it back. Competitors who aren’t registered might be able to undercut you once VAT is taken into account.

You will also see an increase in the paperwork you have to deal with. You will need to prepare and submit quarterly VAT returns online. Although it’s a lot easier if you use HMRC compliant software.

Another drawback might be that if you are the sole owner of another business your VAT registration will apply to all your other taxable activities.

What should I do?

Before making a decision, it’s best to talk to an accountant or expert. We’d be happy to chat to you, so contact us if you’re uncertain. Even if you’re not in Newcastle, we deal with businesses across the North East and beyond.

Either way, don’t worry because registering for VAT doesn’t work out for you, you can always apply to deregister! But beware, your turnover must remain under £85,000 if you do.

If you do that, any VAT already reclaimed on your stock and capital items that exceed £1,000 on the day you deregister will have to be repaid.
VAT is complex, so take some expert advice before making any decisions.