Navigating the complex world of VAT in early stage businesses
At the set up:
- VAT can generally be recovered on set up costs, provided that you register at the correct time and give evidence of your intention to trade.
- There are time limits for VAT recovery and rules relating to single and group VAT registrations.
Single versus group registration
- A single VAT registration is appropriate for an individual trading company.
- If you have one or more companies established, you may wish to consider a VAT group registration. All transactions in goods and services between VAT group members are disregarded for VAT purposes.
When you start to sell
- Determine the VAT liability on the supply of your goods and services at the outset. Many goods and services may be subject to a reduced rate of VAT or may even be exempt.
- Draft your contracts on the basis that they are exclusive of VAT with a general VAT charging clause. If in doubt about the VAT rates applicable to your sales, seek advice.
VAT recovery on costs
- If VAT is applicable to all of your sales, you are generally entitled to recover VAT on your business costs, but this is not always the case.
- For example, restrictions apply to VAT recovery on business entertaining and the purchase or lease of company cars.
- If all or part of your sales are exempt from VAT, VAT recovery on your business costs may be significantly restricted. This is a complex area, so you may need advice.
- Different rules apply to goods and services sold abroad. The rules for sales of international services to other EU Member States changed on 1 January 2010.
- You may be required to complete statistical declarations such as Intrastat forms and EC Sales Lists for goods and services sold to other EU countries.
- If you buy goods or services from abroad, special rules will apply to your VAT accounting, in particular in relation to the purchase of EU services and the recovery of VAT on imports.
- The sale of goods to private individuals in other EU countries can lead to a requirement for VAT registration in that country.
For more information and VAT advice please contact Hannah Dobson