Third of UK small businesses in the dark over VAT
Direct Line for Business finds that around 780,000 of the UK’s micro business owners aren't aware of the VAT registration threshold and as a result may owe money to the HMRC.
- 36 per cent of micro businesses are unaware of the VAT registration threshold
- 122,000 (5.6 per cent) micro businesses owners have limited sales to remain under the threshold
London, 20th April, 2015: New research from Direct Line for Business, the small business insurer, reveals over a third1 (36 per cent), approximately 780,000, of the UK’s micro business owners are not aware of the VAT registration threshold. This means small firms could be unintentionally not paying monies due to HM Revenue & Customs. If a business’ turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £81,000 the operator must register for VAT.
Of the businesses that are aware of the threshold, almost one-in-ten (nine per cent), equivalent to around 122,000 UK businesses, have limited sales to remain under the VAT limit. One reason firms wish to remain under the threshold is to offer goods and services at a lower rate than competitors in the market. Of those micro enterprises that have limited sales, 27 per cent temporarily ceased trading to remain under the VAT registration threshold.
Jasvinder Gakhal, director of Direct Line for Business commented: “When running a small business, it is important to remain on top of your finances and insurances. Managing taxation and other obligations such as insurance, can appear complicated, however, there is a lot of useful guidance available. The HMRC website, for example, has information to help small businesses understand what they need to pay and when.
“We're a fantastically entrepreneurial nation with increasing numbers of businesses being started all the time, but these companies still have tax obligations even if they are run out of a bedroom or a garage.”
It is important small business owners identify what products, goods and services are liable for VAT. Companies producing food and drink for example need to check regulations carefully as they may sell items that are zero rated, or standard rated for VAT. Companies should be aware of the three rate VAT categories and identify what they may need to charge.
Small and micro enterprises should also explore opportunities to reclaim VAT on purchases made by for their company, as they may be able to significantly reduce their business expenses. Companies wanting to find out more about the VAT obligations and how to register can find more information from the HMRC website www.hmrc.gov.uk/vat/start/register/when-to-register.htm.
Jasvinder Gakhal continued: “Often entrepreneurs are so focussed on growing sales and managing day-to-day business operations, they overlook taking out the relevant insurance protections, or reviewing their tax obligations. To avoid unwelcome financial penalties and to reduce business risk it is important to read up about what you do or don’t have to pay as a business and identify if there are relevant insurances you can take out to reduce the impact in the event of an incident, such as fire, flood or theft of stock.”
For more information on Direct Line for Business insurance visit: http://www.directlineforbusiness.co.uk/business-insurance
Notes to editors
1 Research conducted by Consumer Intelligence among a representative sample of 498 UK small and micro businesses with 0-10 employees between 12th September and 2nd October 2014
Figures for total number of companies are based on ONS data which suggests there are 2.17 million micro-businesses in the UK
Direct Line for Business
Launched in 2007 Direct Line for Business provides a range of insurance products for the small business sector direct by phone or on-line.
Direct Line for Business insurance policies are underwritten by U K Insurance Limited, Registered office: The Wharf, Neville Street, Leeds LS1 4AZ. Registered in England and Wales No 1179980. U K Insurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Direct Line for Business and U K Insurance limited are both part of Direct Line Insurance Group plc.