Value Added Tax (VAT) is a consumption tax that applies to most goods and services in the UK. Businesses with a turnover exceeding the VAT threshold must register for HMRC VAT (HM Revenue and Customs) and charge VAT on their taxable supplies.

But if a business is not yet trading but expects to exceed the threshold, it can apply for a VAT ‘Intending Trader’ registration.

It is ordinary for a firm to be set up and incur expenditures before producing any revenue. For instance, real estate companies may only be able to sell homes once a significant amount of time has passed since the costs associated with buying the land and supplies and then constructing the property were paid.

If the input tax is not collected in a timely way, it may have a substantial negative influence on your company’s cash flow, which will ultimately determine whether it succeeds or fails.

What is an Intending Trader?

An intending trader is a person or entity who intends to start a business or trade. This means they have not started trading yet but are preparing to do so.

For example, someone who has registered a company intending to start a business but is yet to commence trading would be an intending trader. Similarly, an individual who has decided to start a business and is in the process of acquiring necessary licenses and permits would also be an intending trader.

Why is it important to register as an intending trader?

In the UK, intending traders must register with HM Revenue and Customs (HMRC) for the following reasons:

• This registration process enables HMRC to keep track of the trader’s tax obligations and guide them on how to comply with tax laws.
• Registering as an intending trader can give a business credibility and help them establish its brand.
• It demonstrates to potential customers, suppliers, and lenders that the business is serious about trading and committed to complying with relevant regulations.

Advantages of VAT intending trader registrations

The standard rate of Value Added Tax (VAT) in the United Kingdom for most goods and services was 20%. But some goods and services are exempt from VAT or are subject to reduced rates.

For example, essential items such as food, children’s clothing, and books are exempt. Also, some items, such as domestic fuel and power, are subject to a reduced rate of 5%.

It’s important to note that VAT rules can change over time. So, checking the most up-to-date information on the official HM Revenue & Customs (HMRC) website is always a good idea. Moreover, you can use an online VAT calculator to evaluate your VAT.

VAT-registered intending traders can enjoy several other advantages, such as:

• Intending trader registration allows you to claim back VAT on business expenses you incur before you become a fully registered business. So, you can potentially save money on equipment, stock, office space, and more.
• It can give your business more legitimacy in the eyes of potential customers and suppliers. This shows that you’re serious about starting a business and that you’re committed to complying with HMRC regulations.
• When you register as an intending trader, you’ll be assigned an HMRC reference number. This 10-digit reference number is known as a Unique Taxpayer Reference (UTR). HMRC uses it to identify and track a business’s tax records and payments.

How to register as an intending trader?

The following is the general overview of registering as an intending trader:

Eligibility criteria and the registration process

If you are starting a new business or becoming self-employed, you may need to register for VAT if you meet certain eligibility criteria. You must register for VAT if:

• Your business’s taxable turnover exceeds the VAT registration threshold (currently £85,000) in 12 months.
• Or, you expect your business’s taxable turnover to exceed the VAT registration threshold in the next 30-day period.
• And/or you acquire goods in the EU worth more than £85,000, and you are not already registered for VAT.

You can register for VAT online using HMRC’s online registration service or by completing and submitting form VAT1 by post. To register online, you will need to have a Government Gateway account. Or, create one if you do not already have one. Once registered, you will receive a VAT registration certificate from HMRC.

Supporting documents required

When registering for VAT as an intending trader, you may be required to provide supporting documents to HMRC. These documents may include the following:

• Proof of identity, such as a passport or driver’s license.
• Proof of address, such as a utility bill or bank statement.
• Details of your business activities, such as a business plan or a copy of your website.
• Information about your business structure, such as details of directors or partners.
• Details of any previous VAT registrations, if applicable.
• Details of business arrangements, contracts or orders in the pipeline, planning for permissions, details of assets bought for business, details of any patent sought, etc.

Ensure you provide HMRC with all the necessary information and documents when registering for VAT. Failure to do so may result in delays or rejection of your application.

Wrapping up

You are not required to figure out the value of the taxable supplies you plan to make or to provide a deadline by which you expect to make them. Presumably, there is no time restriction between registering as an intended merchant and the first taxable delivery. For example, a forestry firm may register as an intended trader but not make their first taxable supply for years.

As HMRC requires that an option to tax be made to indicate purpose, property developers may have a harder time. Nevertheless, if you haven’t purchased the property yet, you can’t do this, even if you could be spending money.

Moreover, if you have questions about VAT obligations as an intending trader, you can seek guidance from GJM & Co. Our experienced professionals can assist you, enabling you to understand them better.

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.