Voluntary VAT registration is rarely on the minds of many sole traders let alone beekeepers. We often consider it as a big business concern, it’s overly complicated, we won’t have time to learn or understand it, it’s too much extra paperwork, and we’re just too busy. HMRC will force the matter when you start generating £85,000 annually and by this time we’ll have money to have someone else think about all that for us, such aspirations are a faraway target for many of us and not even on the cards for many side hustles.
But you could voluntarily apply to be VAT registered at any time in your business journey and I’m here to explain why for beekeepers, it might actually be a good idea. Let’s get into VAT registration for beekeepers!
Value-Added Tax (VAT) is a consumption tax that is placed on goods and services in the European Union (EU) and the United Kingdom (UK). VAT is levied on the sale of most goods and services, with a few key exceptions and those exceptions in our case are food and livestock. Products that we beekeepers deal with frequently. When we sell a product that doesn’t have VAT applied then we are not liable to return any VAT to the HMRC, it’s a straight-up cash sale as it was before.
Selling related beekeeping products such as hives, tools and candles for example will require that you charge the customer VAT and then that VAT then needs to be put to one side and paid back to the HRMC at the end of your accounting period. My period being quarterly (every four months) so I’ll track these VATable sales and put the money aside ready for when I’m asked for it.
Purchasing for your business – a pastime for many a business owner – means that you pay VAT on the majority of purchases. Tools to build hives, the hives themselves, smokers, queen-rearing equipment, vehicles, these and most other items will most likely have had VAT applied to them. The difference now is that you keep those receipts and invoices and ask that the HMRC give you back the VAT you paid.
The overall point being is that as a sole trader in the early days of building a business that focuses on the sale of honey and bees, it means that the VAT you get back in can be much greater than the VAT that goes back out. It financially strengthens the bee farmer in those early days.
Somebody will quickly and often call out that this sounds like a way to play the system, but it couldn’t be further from the truth. Why would the HMRC risk us beekeepers benefiting in this way? On the face of it, it doesn’t make huge sense.
We’re not the only ones to benefit in this way, think supermarkets and butchers. The HMRC exempts food and livestock from VAT. This exemption is in place because food and livestock are considered essentials, and it is important that people have access to them. They need to be easily produced and readily available so these exemptions are important in order to help the flow of such goods.
Simples. Not a con. An important economic intention.
The process was surprisingly easy. It can be done online, by phone, or by post but I’d highly recommend going down the online route. You’ll want to manage your VAT account regularly through the government website so it’s better to get to grips with that side of things now.
Get started here: https://www.gov.uk/register-for-vat/how-register-for-vat
The online service has been designed in such a way that it’s difficult to go wrong, you’ll need all your details such as your contact information, business, and bank details and to avoid unnecessary delays it also helps to have a handle on your accounts. Income, outgoings, and anticipated sales of VATable and non-VATable goods. All in all, it took me approx 20 minutes to fill in the form and 4 weeks to get everything squared away, sometimes it’s longer, sometimes quicker.
We’ve already touched on the primary points here, it basically comes down to the money. You charge your customers VAT which you give back to the government, if you’re selling food or livestock then that doesn’t apply. When you go crazy at the next round of purchases from your preferred beekeeping supplier then you can kindly ask the tax man for the VAT you paid. In that sense, it’s a very simple way to strengthen your financial position early on in your business assuming your focus is food and livestock.
I think there’s an important aspect to this that isn’t so clear and that’s the experience in dealing with tax and the HMRC. We can probably agree that it isn’t the most enjoyable of tasks, but learning early on with smaller values gives you a head start on dealing with the processes and accounting that come with it on a much smaller scale. This will help ensure you’re completely prepared before your business gains traction and also gets you familiar with the basics of business accounting.
An odd side effect here was that it helped me focus my business on getting food and livestock – my core offering – completely on point. With the obvious desire not to expend too much effort in producing VATable goods, I was able to perfect this offering without getting too carried away with other business ideas that would have had me grappling with VAT considerations.
Tracking and managing VAT can be challenging to wrap your head around when you first start, creating some additional work and potential stress for an already pressured business owner. If you’re not used to dealing with VAT values it can be difficult to keep on top of it all which takes us back to why it’s a good idea to start the process early on in your business. If your transactions are relatively minimal month by month then it isn’t too much of a headache to calculate the values.
Unfortunately, there’s now the added challenge of having to use an approved software application or service to submit your VAT return, this was a relatively recent change at the time of writing but one that is supposed to help business owners by easing the challenges of tax calculation whilst providing accurate figures to the HMRC.
Of course, the HMRC sell this as a win-win without much consideration for the technically illiterate among us but we seemingly we have little choice. Time to learn a new skill. As for what software you should be using, that’s something we’ll leave you to consider. They tend to vary in features and cost so there’s no one size fits all solution. Something we might delve into in a later blog.
Being VAT registered is largely about being good at paperwork and record keeping, another potential headache for some and without a VAT invoice, you can’t reclaim the VAT. But this makes sense. If the business you’re purchasing from isn’t VAT registered then they won’t be charging you VAT therefore you can’t ask the HMRC for it back. This has a way of focusing your purchasing activities on other VAT-registered businesses and frequently muttering those tiresome words “Can I have a VAT invoice please”.
Keep copies of everything and transfer hard copies to electronic filing for easy storage and retrieval, you’ll need to keep accurate documentation to prove your VAT claim should you ever be asked but the software applications and services that we touched on above try and make this process easier.
Provided that your business is modelled to sell food and livestock then it’s a no-brainer. Get yourself VAT registered. The early financial gain can help take out some of the stings in your finances provided you’re happy to do a little extra admin and it can make all the difference for a startup in a pressured economy. If your business is in it for the long term then all this early experience in such financial matters will only prepare you for what’s ahead.