How to set up UK accounts - not VAT registered, but expect will be one day?

[Maf. King]

On Saturday, 3 December 2016 08:49:58 GMT Dr. David Kirkby (Kirkby Microwave 
Ltd) wrote:
> I run a company in the UK, but are not VAT registered. But I think
> that will change at some point, and the company will need to be VAT
> registered.
> 
> Is it more sensible to set up the GnuCash account as "Business" or "UK
> VAT Accounts"?  There seems to be two possible issues
> 
> 1) If I set it up without VAT, it may become more tricky to manage if
> the company becomes VAT registered.
> 
> 2) If I set up with VAT, it will cause more of a headache now, when
> the company is not VAT registered. (I did wonder if setting it up with
> VAT, and setting the VAT rate to be 0% might be a sensible solution.)
> 
> Any thoughts?

Hi David,

I have often said in the past (and others have too) that you should make GC 
reflect real life.  You are not registered for VAT, and showing any sort of VAT 
on your invoices is, IIRC, not legal.  You also may not ever register, or you 
may register with a flat-rate scheme agreed with HMRC which simplifies the 
accounting side.

In terms of specifically your question about VAT, it is easy to add accounts to 
GC at any time.  IIRC, you will need to add a couple of liability accounts 
(VAT box 1 and 2) and an asset (for VAT box 4) all under a parent liability 
(which I  called VAT).  You'll also need to set up some tax tables for your 
vendor bills and customer invoices, but that will only take a few minutes.

If you have expenses which are not on vendor bills (eg credit card) you'll 
have to manually record the VAT part as a split

In short, I'd say that unless you are reasonably sure you'll hit the 
registration threshold this tax year, don't set up the VAT accounts yet.  Get 
more familiar with using GC and editing the account tree etc..  Adding VAT 
later won't be significantly more work than adding it now, and you don't need 
it yet. 

0.02 
Maf.