“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.
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.
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.
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.
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.
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.