If you run a creative business, you might have heard whispers about VAT. Maybe you’ve tried to ignore them. But fear not! This guide will help you understand what the threshold for VAT is, when to register for VAT, and how to do your VAT return without losing your mind.
What Is VAT and Why Should You Care?
VAT (Value Added Tax) is the tax that sneaks into almost every part of running a business. If your business sells products or services, you might have to charge VAT to customers, collect it, and then pass it along to HMRC. Sounds fun, right? Not really, but stick with us.
What Is the Threshold For VAT?
As expert creative accountants, one of the most common questions we get asked by our clients is: what is the threshold for VAT? The answer is simple. If your turnover exceeds £90,000 (as of 2024), you must register for VAT.
If you’re below that, you can choose to register voluntarily. Some businesses do this to reclaim VAT on expenses, but it depends on your situation.
When To Register For VAT
Being aware of when to register for VAT is crucial.
So, if your revenue does hit £90,000 within the last 12 months (not just in a calendar year), you must sign up. If you expect to reach that amount soon, it’s a good idea to plan ahead. HMRC doesn’t take kindly to late registrations, and nobody wants to be hit with surprise penalties.
Different VAT Schemes For Creative Businesses
Not all VAT schemes are created equal, so creative business owners often opt for the Flat Rate Scheme. This simplifies VAT calculations, where instead of working out VAT on every single transaction, you pay a fixed percentage based on your industry.
Less time on paperwork means more time for your craft!
How To Do VAT Return
Filing VAT might sound scarier than a blank page with a looming deadline, but it’s more manageable than you think, especially if you have an expert accountant to take care of it for you. Here’s our quick breakdown of how to do VAT return:
- Keep track of all VAT transactions → Yes, all of them! You’ll need a record of what you’ve charged and what you’ve paid.
- Log into your HMRC account → Since tax went digital, all VAT returns are filed online.
- Fill out the return form → Add up your VAT sales, purchases, and reclaimable amounts.
- Submit and pay (or even reclaim money back!) → If you owe VAT, HMRC wants their cut. If you’ve paid too much, you’re entitled to a refund. Hooray!
Common VAT Mistakes To Avoid
Creative businesses are full of brilliant ideas, but VAT mistakes can trip up even the best creative minds. Here are some to watch out for:
- Don’t forget to register → If your turnover exceeds the limit and you don’t register in time, HMRC could fine you.
- Mixing business and personal expenses → That fancy pen? Probably not VAT-deductible. That new studio camera? Maybe!
- Missing deadlines →VAT returns happen every quarter, so get ahead and set reminders to avoid late fees.
Want to find out more? Here are five things to remember when preparing your VAT tax return.
Voluntary VAT Registration
Even if your revenue is below what the threshold is for VAT, you can still register voluntarily. This can help if you work with VAT-registered businesses and want to reclaim VAT on purchases. But if your clients are mainly individuals who don’t charge VAT, it might not be worth the hassle.
Need A Creative-Friendly Accountant?
Understanding when to register for VAT and how to do a VAT return makes running a creative business much smoother. If you’re confused, talk to an accountant (preferably one who loves creative businesses as much as we do!). VAT might not be fun, but with the right help, it doesn’t have to be a nightmare or drain your creative energy!
At Raedan we specialise in helping creative business owners like you navigate the tax world with ease. Whether you need advice on when to register for VAT or step-by-step guidance on how to do VAT return, we’re here to help.
Get in touch today and let’s make VAT work for you, not against you!
