Wednesday, June 19, 2024

Do You Need To Register Your Business for VAT?

( Starting a business is thrilling. It’s also a whole lot of hard work. While building up your customer base and learning to market yourself can be exciting, there’s one thing many business owners dread – and that’s taxes! Taxes for businesses can be complicated. Today we’re asking, do you need to register for VAT? 

What is VAT? 

Value Added Tax (VAT) is a tax applied in Europe to goods and services, a bit like the Sales Tax in the USA. It’s known as a consumption tax because the consumer, not the business, pays it. Rates vary, although the standard rate is 20%. Some items, like non-luxury food and drink, are usually exempt. Other items apply VAT at a reduced rate of at least 5% or are zero-rated.

Businesses in Europe need to register for VAT if their annual turnover reaches a certain threshold. This threshold differs between countries in the EU. For example, £85,000 in the United Kingdom. But would a business based in the US ever have to register for VAT?

Why register for VAT? 

You’re most likely already paying business taxes in the country your business is registered in. But if you supply products or services to customers in the EU, you might need to charge and collect VAT. But there’s a catch. Each country in the EU can charge their own rate of VAT. Standard rates are usually between 15-20%, although other rates may apply depending on the goods you sell. Some digital products and services, for example, music downloads and e-books, are subject to their own rules entirely. 

Unlike with other taxes, the seller collects the tax directly from the customer and passes this on to the government. So you’ll need to factor this rate into the price of your products (if applicable), otherwise you’ll be paying out of your own pocket. If you are selling to other VAT registered businesses, you most often don’t have to charge them VAT. It applies to regular consumers only. 

How to register? 

Register for VAT with whichever EU member state you’d like, even if your customers live in many different EU countries. Later on, you can then consolidate your European tax returns into one single return, through a non-union scheme

How do you file your returns? 

When you register for VAT, you will find out how frequently you need to submit returns and how to do so. To help with this, you might be able to find an accountant who specialises in this form of tax. If you’re already using accounting software, this might also be of some use. Using digital VAT software allows business owners to generate VAT returns automatically. This also enables you to keep digital records and to submit your returns online.

There are many areas your business shouldn’t cut back on, and your tax obligations are one of them. Failing to comply with tax obligations could cost you your business. It could also land you in serious hot water. So find out if your business is required  to register for VAT today.

Staff Writer; Ricky Love

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