Sigma Accounting:

Sigma Accounting specialises in providing accountancy and business advisory services to owner managed businesses based on the Isle of Man.

For an informal discussion about how we can help you with the accountancy requirements of your business please contact us.

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SIGMA accounting

Sigma Accounting is registered in the Isle of Man (number 023280B)

and is a member of the ICAEW Practice Assurance Scheme.

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Deciding on VAT registration:

VAT basics;

VAT is a tax which is charged on most goods and services that VAT registered businesses provide in the UK. It is also charged on goods and some services that are imported from countries outside the European Union, and brought into the UK from other EU countries.

VAT is charged when a VAT registered business sells to either another business or to a non-business customer.

When VAT registered businesses buy goods or services they can generally reclaim the VAT they have paid.

There are three rates of VAT, depending on the goods or services the business provides. The rates are:

• standard - 20 per cent
• reduced - 5 per cent
• zero - 0 per cent

There are also some goods and services that are:

• exempt from VAT
• outside the UK VAT system altogether

VAT and the Isle of Man;

Even though the Isle of Man is not part of the UK, for VAT purposes it is treated as if it is. Except for a few minor exceptions UK VAT rules apply to the Isle of Man, and goods sent from the Isle of Man to the UK or vice versa do not count as imports or exports for VAT purposes.

Who can register for VAT;

You can register for VAT if you're in business and you are:

• an individual
• a partnership
• a company
• a club
• an association
• a charity
• any other organisation or group of people acting together under a particular name, such as an educational or health institution, exhibition, conference, etc

For VAT purposes, the individual or organisation that is in business is known as a 'taxable person'.

Who can't register for VAT;

You can't register for VAT if either:

• you sell only goods or services that are exempt from VAT
• you aren't in business according to the definition that Customs and Excise uses for VAT purposes

When does VAT registration become compulsory;

If you're a business and the goods or services you provide count as what's known as 'taxable supplies'  you will have to register for VAT if either:

• your turnover for the previous 12 months has gone over the 'VAT threshold' (£77,000 for the 2012/13 tax year)
• you think your turnover will soon go over this limit.

You can also choose to register for VAT  even if your turnover is below the VAT threshold.

The effects of voluntary registration;

There are potential advantages to charging VAT on your sales and being able to claim back VAT on your purchases, which you may benefit from depending on your circumstances. For example:

• If you only sell zero-rated items but some of your purchases are standard-rated items you would not have to charge your customers VAT but could claim back the VAT you pay on your purchases.

But you also need to be careful about how being VAT registered will affect your customers:

• If the majority, or all, of your customers are registered for VAT then they can reclaim the VAT you charge them whereas if your customers are mainly not VAT registered they effectively be paying up to 20% more for what you sell to them (the VAT you submit to Customs and Excise) than if you were not VAT registered.

In short voluntary VAT registration can make your business more profitable but, depending on your customer base, it can also make your business less competitive.

This page contains a brief overview of VAT registration; for an informal discussion on how Sigma Accounting can help you with your VAT requirements please contact us.