When is the right time to register for VAT?

Whether your landscape gardening business is a sole trader or limited company, when it comes to the VAT register threshold, the same rules apply to both entities. If your business is not yet registered for VAT, do you know what the registration rules are and when you would need to apply? Landscape gardening businesses can reach the VAT threshold quickly, especially if they’re doing landscaping work, so it is important for them to arm themselves with the knowledge.

The VAT registration threshold in the UK is currently set at £85,000, which means if the turnover (sales) in your business is approaching or hits £85,000 within a 12-month period then you must register for VAT. The 12-month period is not just your accounting period or the tax year, it is any consecutive 12 months, known as a rolling 12-month period. The rules state that you must start charging VAT from the date you exceed the £85,000 VAT threshold. The current standard rate of VAT in the UK is 20%.

We were approached recently by two landscape gardening business owners who were looking for help with their business finances. After an initial conversation with one of them, it became clear that he was very organised. He had been keeping QuickBooks up to date, doing his invoicing and even keeping a spreadsheet so he could track his rolling 12-month turnover. During a follow up conversation, he realised that he was a couple of days away from going over the VAT registration threshold. The spreadsheet had been key to helping him understand his position.

The other landscape gardening business owner didn’t appear as organised. He had not kept any type of bookkeeping and thought he might have gone over the VAT registration threshold a while ago. The first thing he needed to do was to get his bookkeeping up to date, then he could establish when he exceeded the threshold. VAT is due on all taxable sales from the point the business turnover exceeded the registration threshold.

Looking at the comparison between the two examples, it is clear which landscape gardening business owner is in the better position. He had easily recognised that he needed to register for VAT, found someone to take care of the VAT for him and will start charging future clients VAT from the date of registration.

But all hope is not lost for the other landscape gardening business owner. On the first VAT return after registering, you are allowed to claim what is known as ‘pre-registration input VAT’. This is VAT incurred before the date of registration on:

• Goods purchased in the four years prior to registration
• Services received in the six months prior to registration

Claiming pre-registration input VAT can add up to a significant sum which helps to reduce the first quarter VAT payment and sometimes results in a tax refund. There are certain conditions that need to be met so it’s advisable to seek help from a professional bookkeeper or accountant.

If the story of our second landscape gardening business owner resonates with you, don’t bury your head in the sand. Find a professional bookkeeper or accountant that can help you. You will feel so much better when the weight is lifted off your shoulders.

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