VAT registration for a business is not mandatory unless your business turnover exceeds the threshold of £85,000 in the last 12 months.

You can also register for VAT even though business turnover will not exceed the threshold, which is called volunteer registration. There are some pons and cons of volunteer registration, please discuss with your accountants before you apply.

VAT Schemes:

VAT has a few schemes – details below.

Standard VAT:

 You will charge 20% VAT on your sales (goods and services) and claim any Input VAT on your business expenses.

You submit the VAT return every quarter and pay the net VAT to HMRC.  

Flat rate VAT:

 You will charge 20% VAT on your sales (goods and services) and pay to HMRC a flat rate(depending on the sector you are operating) on the total collection, i.e. you will collect £100+VAT=£120 if your flat rate is 10%, then you will pay to HMRC £12 (£120*10%), the difference is the Flat rate gain £8 (£20-£12).

You cannot claim any Input VAT on your expenses like standard VAT, but if you have capital expenditures over £2,000, including VAT, then you can claim the Input VAT.

Not suitable for businesses with significant VAT expenses; please discuss this with your accountants before choosing the scheme.

Margins Schemes VAT:

This scheme is suitable for businesses that deal with second-hand goods, i.e., cars, vans, arts, antiques, etc.

For example, if you bought a used car of £10,000(no VAT reclaimable) and sold it @£11,500 then under this scheme you will pay VAT on the difference of £1,500, you are not allowed to issue any VAT invoice to the buyers.