Commentary

V6.348 Practical points for small businesses

Part V6 Business by business

V6.348 Practical points for small businesses

Small businesses

V6.348 Practical points for small businesses

Introduction to VAT for small businesses

This section looks at some practical points and common areas where VAT presents a challenge to small businesses. Included within this discussion are:

  1.  

    •     registration and common registration pitfalls for small businesses

  2.  

    •     cost sharing arrangements for small businesses

  3.  

    •     input tax recovery and partial exemption for small businesses

  4.  

    •     small business schemes

Registration and registration pitfalls for small businesses

Compulsory VAT registration

Many small businesses will operate below the VAT registration threshold and will not wish to register for VAT until they have an obligation to do so (although see below under 'Voluntary registration or choosing to remain unregistered' for why they may wish to register prior to such an obligation arising). Such small businesses will need to monitor their levels of taxable turnover in order to ensure that they do not neglect a compulsory registration requirement. Normally two turnover tests will be relevant to determining whether a compulsory registration requirement exists for a small business:

  1.  

    •     the historic test (historical turnover rule)

  2.  

    •     the future test(future turnover rule)

For details of the historic and future tests and examples of how they apply, see V2.135–V2.136 respectively.

It merits underlining that certain types of turnover are excluded when determining the value of taxable supplies for these tests. Amongst these is the sale of most capital assets. However, it is necessary to include the value of services bought in from overseas which are subject to the reverse charge in

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