If you are planning to open a business in the UK, you may wonder what is a VAT number that you must not ignore at all. However, why you need a VAT number in the UK is more important to think about.
Long story short, without a VAT number, you have to say goodbye to your business in the UK. Got scared? Don’t worry, in this guide, we will discuss the A to Z of the UK VAT number.
What is a VAT number?
The full form of VAT is Value Added Tax, and the VAT number is a unique code is issued to traders who want to register for VAT, or already registered. A VAT number is issued by HMRC (His Majesty’s Revenue and Customs) in the UK. In terms of economic activities, GST and VAT are the same.
A VAT number helps a trader collect tax on tradable goods, pay tax to the authorities, and reclaim VAT when necessary. This identifier also makes local and international trading easy and establishes compliance with tax laws.
Be it trading, loans, gifts, exchangeable business assets, or food items, everything is eligible for VAT. A VAT number is issued in two ways.
If a company reaches the £85,000 turnover threshold, it will be naturally eligible for the turnover-based VAT registration. However, if the company does not reach the threshold, it can opt-in for a voluntary VAT registration.
More details of the VAT number will be unveiled in the next sections. So, let’s get started.
Types of UK VAT rates
Imagine, you cleared all steps to establish your start-up but mistakenly charged VAT from your customer, and the next day you found your store sealed!
So, it is clear that charging the right VAT amount is as important as getting the VAT registration done correctly. To help you in this matter, here is a checklist of various UK VAT rates.
- Standard rate – It adds a 20% tax on the value of a product. Adults’ clothing, restaurant meals, electronics, furniture, hairdressing services, mobile phone contracts, pay TV subscriptions, and hotel accommodation are subject to the standard VAT rate.
- Reduced rate – Engineless residential caravans, home insulation installation, children’s car seats, and home energy materials belong to this category. They come with a 5% reduced VAT rate.
- Zero rate – Zero-rated VAT means tax-free products and services. This includes Food items except soft drinks and snacks, clothes and shoes of children, books, newspapers, domestic fuel and power, certain medications and medical equipment, and public transport fares.
A VAT number is a must for…
- UK-based businesses.
- Businesses outside the UK buy, sell, import, or store taxable goods in the UK or through the UK.
- If an individual receives packages or services that are liable to pay UK VAT.
- UK-based businesses that earn over £85,000 per year or have the possibility to earn this amount in a month. For non-resident businesses, this threshold may vary.
- E-commerce businesses or companies that sell to EU member states earn €10,000 or more per year.
Here, the word ‘business’ covers all public limited companies, share-based or guarantee-based private companies, partnerships of general and limited liability, sole traders, and unlimited companies.
Things needed for UK VAT number registration
For a UK VAT registration, you must fill up a VAT registration application provided by the HMRC first. When submitting, you must add some basic information and documents.
This information varies according to the business type. For instance, if you are a sole trader, you have to submit your birth date to HMRC. On the contrary, this is not needed if you own a limited company.
This information are needed for VAT registration of limited companies –
- Company details, including name, address, and what is traded there.
- Annual sales details of the company.
- Details of the business’ bank account.
- Company registration number.
- Unique Taxpayer Reference Number.
For businesses owned by individuals or partners, the required information includes –
- The owner’s date of birth.
- Photo ID, copy of passport or driving license of the owner.
- National Insurance number.
- Bank account details of the owner and the business.
- Details on the nature and annual turnover of the business.
- Information of if the owner switched or transferred his business in the last two years (if HMRC demands).
If you are operating a non-resident business in the UK, you also may need to submit these documents –
- VAT certificate from your own country.
- Passport copies of the legal representatives of your company.
- A snippet or passage of the trade register of your company.
- Proof of your business activities in the UK.
Sometimes, officials may ask you for more documents, whether you are running a native or non-UK business in the UK. These might be contracts with transport operators or marketplace platforms. You better prepare these papers in advance.
How to register for a UK VAT number?
You can manually register for a VAT number by going to HMRC with the required documents, or do it online. Registering online is the best option if you are operating a non-resident business.
Here is the step-by-step guide to online VAT registration in the UK
Step 1 – Check your company’s annual turnover and decide which type of VAT registration you will go for. If the turnover reaches the £85,000 threshold, your business is eligible for the registration. Otherwise, you can register voluntarily.
Step 2 – Appoint a UK VAT representative to know further details of the process. Make sure he is a resident of the UK with a valid address.
Step 3 – Go to the HMRC website and register for a Government Gateway Account. Here you must provide –
- Your valid email address.
- The confirmation code HMRC sent to the email address.
- Your original name.
- A unique account password of 8-12 characters and a recovery password.
- The VAT account type you want (turnover-based or voluntary)
- Answer to the questions provided by HMRC.
- Information of your business details and your UK VAT representative.
Step 4 – Submit your application and wait for HMRC’s approval. The approval will take 30 days maximum. As the approval, you will get a VAT number and a certificate in your account.
I want to register for a VAT number manually…
In that case, you have to download the VAT1 form from the HMRC website. Fill it up and send it to the HMRC office with the required documents. After approval, the authority will send you a VAT certificate within 30 days. Later, create your VAT account online to get the VAT number.
Manual VAT registration is applicable when you plan to go for the flat VAT rate scheme or want to register multiple company units under different VAT numbers.
Why do you need a VAT number in the UK?
First of all, you must have a VAT number in the UK to collect VAT from your customers and return VAT to HMRC every 3 months. Also, it will help you to reclaim VAT from HMRC.
Secondly, your VAT number makes your business legal and trustworthy. In other words, you have a VAT number, so you are a real businessman. It is safe to buy from you.
Thirdly, fake companies make fake VAT numbers. With a verified VAT number, you will be able to save yourself and your company from VAT fraud, penalties, or other discrepancies. The same goes for the company you want to trade with.
Fourthly, you can do cross-border trading in peace. Because transactions of goods require a VAT number to clear inspections and support international tax laws. Without a VAT number, your shipments will wait at customs for a lifetime.
Fifthly, when two vat-registered businesses trade with each other, it reduces the VAT on the goods. As a result, the price remains affordable. Otherwise, the products become 20% more expensive.
How to identify a UK VAT number?
A UK VAT number generally contains 11 characters in total – the first 2 characters are letters GB and the rest 9 characters are digits. The VAT number format for England, Scotland, Wales, and Northern Ireland is GB111111111.
However, the VAT format of Northern Ireland may vary according to what and where you sell. For instance, if a company of Northern Ireland trades with EU member states, the GB will change into XI. Your VAT representative can help you in this matter.
Besides, in the UK, different types of institutes has different VAT number formats –
- Branch traders – 14 characters, with GB and 12 digits (GB111 1111 11 111).
- Government Departments – 7 characters, with GB GD and 3 digits (GB GD 111).
Health Authorities – 7 characters, with GB HA and 3 digits (GB HA 111).
Where to display the VAT number?
You obtained a VAT number but are keeping it hidden, you are inviting trouble. Therefore, display your VAT number to the required places or persons to prove yourself trustworthy. These include –
- Business website
- Business invoices
- Receipts issued to clients and certain suppliers.
- To HMRC while paying or reclaiming VAT and sending VAT returns.
- Trading activities with VAT-registered businesses in the EU.
- Dealing with business tax affairs with an accountant or agent.
Conclusion
In this guide, we tried our best to simplify the details of the VAT number in the UK. A VAT number is not just a bunch of digits, it’s a type of license that makes your business legal to the world. A correct and verified UK VAT number can guarantee the best profits also.
Hence, be careful while dealing with your VAT number. Make sure no mistake happens while typing it on the screen by you or your staff. Be updated on changes regarding the UK finance and their VAT system. Also, don’t hesitate to ask for help from your VAT representative, anytime.
