When should I register for VAT?

When should I register for VAT?

Strictly you do not need to register for VAT until you reach the stage where your fees have exceeded the annual VAT threshold, or are likely to within the next 30 days. From 01.04.14 the threshold is £81,000. We normally recommend that you register for VAT immediately. The reasons for this are twofold: you can start claiming back straight away the VAT that you have incurred on your business expenses, and you do not have to monitor carefully your turnover levels to check when you are about to exceed the registration threshold.

You register by completing and submitting form VAT 1 and we can deal with this for you. In many chambers your clerk will do this for you at the outset; but you should check. When you register, you can actually choose your quarterly accounting date. You should check with chambers, because most sets of chambers prefer all their members to have the same month period, depending on the quarter date that you have chosen, or have been allocated.

Rather than adopting the standard method of accounting for VAT you may be eligible to join the optional flat rate scheme (see below). Under this scheme you calculate your VAT payment as a fixed percentage of your total fees. One advantage of the scheme is reduction in administration because you don't need to record the VAT charged on each individual receipt and payment. Depending on how your chambers accounts for various expenses, you may in general pay either more or less VAT under the flat rate scheme. We can advise you whether you will be eligible for the scheme and also whether you are likely to pay less VAT if you join the scheme.

VAT flat rate scheme for barristers

If your fees are £150,000 or less you may be eligible to join the VAT flat rate scheme. This will reduce your administration and may even reduce the amount of VAT you have to pay.

What is the flat rate scheme?

The flat rate scheme simplifies VAT accounting for small businesses, including barristers' practices. The amount of VAT you have to pay is calculated as a percentage of your total gross (VAT inclusive) fees rather than being based on individual fees and expenses. It does, however, include all economic activity, so that residential rents and bank interest, which would normally be excluded from output tax calculations, are included in the calculation of output tax under the flat rate scheme. So be careful.

What flat rate percentage will I use?

From 04.01.11, barristers have paid VAT using a flat rate of 14.5%. In the first year of VAT registration the flat rate will be reduced to 13.5% if you apply for the scheme on registration.

The 14.5% rate has been derived from the average VAT paid by barristers, injury claims services and solicitors. You may otherwise pay VAT at an effective rate that is higher or lower than this average. Depending on your circumstances, joining the flat rate scheme may save you money. If you join the scheme you will still need to issue invoices (using the normal VAT rate, not the flat rate) and submit VAT returns. You will still need to maintain proper accounting records, but you will not be required to keep separate records of gross, net and VAT for each transaction.

Can I recover the VAT if I buy expensive capital assets?

If you buy an expensive capital asset you may pay a lot more input VAT than normal. If the gross cost of the asset exceeds £2,000 you can reclaim this VAT even though you are in the flat rate scheme.

Am I eligible to join the scheme?

In most cases you will be eligible to join the scheme if you have reasonable grounds for believing that your taxable turnover (before VAT) in the next year will be £150,000 or less.

Can I leave or rejoin the scheme?

You may leave the scheme voluntarily at any time, although this would normally be at the end of a VAT period. You may not then rejoin the scheme for a further 12 months.

On the anniversary of entry into the scheme you need to check your gross fees in the previous 12 months. If these exceeded £230,000 you must leave the scheme unless you can show that the increase in fees was a 'one off'.

You must also leave the scheme if you expect your gross fees in the next 30 days alone to exceed £230,000.

Should I join the scheme?

Joining the scheme will change the amount of VAT you have to pay, and there will be winners and losers. How you will be affected will depend on a number of factors such as your level of fees, how your chambers accounts for VAT, whether chambers are paying rent subject to VAT, and whether your clerks are employed or self employed.

Cassons can advise you whether you will be eligible for the scheme and whether you are likely to pay less VAT if you join the scheme. Even if you are unlikely to save VAT by joining the scheme, you may still find it beneficial because of potential administration savings.

This answer was last checked May 2017. This answer is for general guidance only. It provides an outline, and may not include points which are important in your case. You should not rely on this answer without taking individual advice based on the full facts of your case. The information given was correct at the time of release.