“My business turned over £75,000 during the last financial year. Should I register for VAT, or should I wait until I hit the £83,000 VAT registration threshold?”
Depending on your perspective, the decision to either register for VAT or to stay well away can seem like a no-brainer from either angle. Some people may jump at the chance to start reclaiming VAT on their purchases while others may baulk at the thought of having to deal with the extra paperwork.
The truth is there are pros and cons abound in equal measure. As the owner of a business, it’s your responsibility to decide whether the positives outweigh the negatives, or whether to wait until your annual turnover reaches the all-important £83,000 figure.
If your turnover (total sales) in the previous 12 months exceeds the compulsory registration threshold (currently £83,000), you must register. Failure to do so can result in fines.
Advantages
Reclaiming VAT on your purchases
By registering for VAT your business will be able to reclaim any VAT paid on the purchase of goods and services from other businesses. This extra capital can be hugely useful – especially if your cashflow is tight.
Credibility
Displaying a VAT number will make your small business seem more established and financially sound. Investors, lenders and may have more confidence in your business, potentially leading to easier access to finance and increased business.
Access to VAT schemes
Registering for VAT will enable you to apply to VAT schemes such as the Flat Rate scheme which can generate you extra money. Under the Flat Rate Scheme, you charge customers the standard 20% VAT rate but pay HMRC a reduced, sector-specific rate.
Disadvantages
Extra administration
Registering for VAT will significantly increase the time and costs spent on administration. You will be required to record all VAT invoices and receipts, maintain separate accounting records and submit VAT returns each quarter.
Competitiveness
Adding an extra 20% to your prices could potentially make your goods or services less competitive against businesses who are not VAT-registered. You’ll need to think carefully about how you will market your products so as to not make them appear overpriced.
If you sell mainly to non-VAT registered businesses or the general public, then perhaps not. If you sell mainly to VAT registered businesses then you probably should.
Contact us
Our team can assist you with any aspect of VAT:
- dealing with the process of VAT registrations
- deciding what scheme is best for your business
- advising you on your record keeping requirements
- we can also help you to set up an online accounting system to deal with your VAT requirements
- completing & submitting the returns for you.
Fill out our contact form or call 0161 336 2222 to find out more about our VAT services.
© 2019 Warr & Co Chartered Accountants. Warr & Co Chartered Accountants is a member of The Institute of Chartered Accountants in England & Wales (ICAEW). Whilst the information detailed here is updated regularly to ensure it remains factually correct, it does not in any way constitute specific advice and no responsibility shall be accepted for any actions taken directly as a consequence of reading it. If you would like to discuss any of the points raised and / or engage our services in providing advice specific to your personal circumstances, please feel free to contact any one of the partners on 0161 477 6789 or contact us via our website forms. Warr & Co Chartered Accountants are registered to carry our audit work in the UK, our audit registration number is C002961684, for more information please visit www.auditregister.org.uk.