Around 36 per cent (approximately 780,000) of micro business owners remain blissfully unaware, says small business insurer Direct Line for Business, which carried out the poll.
According to Direct Line for Business, 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 £82,000 (as of April 1 2015) the operator must register for VAT.
It claims that of the businesses which are aware of the threshold, almost one in 10 (nine per cent) – equivalent to around 122,000 UK businesses – have limited sales to remain under the VAT limit.
The firm believes that 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, said: “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 are 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.”
Direct Line for Business says it’s important small business owners identify what products, goods and services are liable for VAT. Companies producing food and drink 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.
Gakhal added: “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.”