VAT 101: How much VAT should a small business pay?


If you’re a small business owner, “the VAT threshold” is a phrase you generally only hear spoken in ominous tones. It’s usually taken as a signal that your business is about to be burdened with additional paperwork and expense.

But isn’t that rather a negative way to look at the VAT threshold? After all, when you reach it, it’s a sign that your business has reached a certain level of success. Isn’t that something to celebrate not commiserate?

What’s more, with the right systems in place, being VAT registered needn’t represent a huge administrative headache either.

So, if VAT is something that’s starting to affect your business, read on for an introduction and small business guide to the different types of VAT schemes that exist (yes, there’s more than one), how to register your business and how to view the VAT rules and additional paperwork as an opportunity not a threat.


There are four main VAT schemes

Standard VAT Accounting

If the turnover of your business exceeds £85,000, you have to register for VAT.

But there are also some voluntary schemes available from HM Revenue and Customs (HMRC) that might suit your business and the way it works. Like everything, there are pros and cons with all of them – your accountant will be able to advise you on your options on how best to pay VAT and if any of them suit your business.


Flat Rate Scheme

This is a voluntary scheme for businesses with a taxable turnover of less than £150,000 (you don’t even have to have reached the £85,000 VAT threshold). The VAT rate is based on a percentage of your turnover to HMRC (the percentage differs according to the industry sector you’re in). You don’t claim VAT back on the taxable supplies and purchases you make.


Cash Accounting Scheme

This is a voluntary scheme for VAT registered businesses with a turnover less than £1.35 million. You only pay HMRC the VAT income you’ve actually received during a quarter and you only reclaim VAT on your purchases when you have paid your supplier. In these instances the business will file a quarterly VAT return.


Annual Accounting Scheme

This is a voluntary scheme for businesses with an annual turnover below £1.35 million. Instead of making quarterly returns, you make advance payments towards your bill throughout the year. You then file one VAT return and pay the balance – or claim a refund for any overpayments.


How do you register for VAT?

OK, so you have to – or you’ve opted to – register for VAT and get your own VAT number. How do you do it?

It can be done online in most cases. You’ll need the following information to hand:

  • Your Unique Tax Reference
  • Your company’s bank account details
  • Your company number and registered address
  • Details of any associated businesses from the past two years
  • You might also need the details of any businesses being transferred or bought, if applicable.


How can I minimise the effects VAT returns have on my paperwork?

There is no doubt that there is more administration involved when you are registered for VAT. However, with the right systems in place, the effects of VAT registration can be lessened. Indeed, you could even find yourself with less work than before. Tools like Concur Invoice put an end to supplier invoice data entry and they can be tailored to meet small business needs. They also give you powerful reporting capabilities that make VAT returns easy and give you better visibility into your numbers than ever before.

And it may be worth bearing in mind Making Tax Digital, which comes into effect in April 2019. At this point, businesses will be required to submit VAT returns electronically and have digital VAT records of all expenses in their accounting software. The intention is that Making Tax Digital will provide a single, seamless process with quarterly updates generated and sent direct from the software you use to keep your records.

So rather than seeing VAT registration as a threat, you could see it as an opportunity to make your business better prepared and more productive than ever before.