Insights | Accounting, Questions, Stretford, Tax, VAT

When Should I register for VAT

Below we will discuss when a business has to register for VAT, the advantages and disadvantages. We will also look at some of the VAT schemes.

For some businesses VAT registration will be compulsory. Currently, HMRC VAT threshold is set at £85,000. If your business has a total taxable turnover for the last 12 months of over £85,000 (above the VAT threshold) or you expect your turnover to exceed £85,000 in the next 30 days then VAT registration is compulsory. This will entail keeping a running total of your sales per month that go back 12 months. This needs to be completed monthly and not at the end of your company year-end.

A common misconception is that businesses use profit and not turnover/sales to assess their VAT registration obligations. Those that are new to trade, and even small businesses can very quickly fall under the scope of VAT registration. VAT registration is not always a negative. Some businesses choose to register voluntarily for VAT. The exception to the rule is where everything you sell derives from Exempt Sales, which is extremely rare.

For businesses that are under the VAT threshold and are considering registering, it will be best to weigh up the advantages and disadvantages of registering.

Benefits of Voluntary Registration for VAT

It is more professional and sets a good impression. Some companies prefer not to work with small non-VAT registered businesses. VAT registration can give the impression of an established firm with less associated risk. VAT registration can open doors for larger opportunities.

Reclaim VAT. If you have paid for VAT on goods and services, a VAT Registered Business can reclaim (Input VAT) back from HMRC. If the company has raised any Sales Invoices, then these would also need to be included on the VAT return, leaving an amount due from, or payable to, HMRC. If for example you have purchased a van, or a lot of equipment, then VAT registration might be worth considering.

Disadvantages of VAT registration

Additional cost for customers. The negative side of VAT Registration is that the VAT Registered business will have charged VAT (an additional 20%) to its customers. In some circumstances this can price you out of the market making you less competitive. On the other hand, if your customers are VAT registered then this will make little difference to them as they will claim the VAT back that has been charged. However, a point to note if the customer is the general public or a business that is not VAT registered then the increase for VAT could have severe implications. This is not to say a business can absorb the VAT into its existing pricing structure and with the passing of time slowly increase its price.

Summary

Unsure when you need to register for VAT? Our experienced VAT accountants in Manchester can assess your turnover, explain HMRC thresholds, and help you register at the right time to avoid penalties and stay fully compliant. Call Accounting Solutions Manchester today on 0161 879 7175 for a free, no-obligation consultation.