Have you considered whether your business should register for VAT? In this blog we will explore the reasons why you might want to register.
Most businesses with a turnover (total sales) of £85,000 or more will legally need to register although there are a few exceptions.
However even if your turnover is below £85,000 it might still be worth thinking about. Currently around half of VAT registered businesses in the UK have registered voluntarily rather than because they have to.
Reasons you might want to consider registering:
- You may be able to get tax refunds! If your suppliers are charging you VAT on your business expenses and this exceeds the VAT you would be charging your customers, then you could be due a refund.
- Being VAT registered may make you appear like a bigger business to potential customers.
- If you are getting close to the limit of £85,000 you might find it easier to register now. Rather than have to continuously monitor your bookkeeping records to see if you have gone over. Once you reach a turnover of £85,000 you need to register for VAT by the end of the month following the month you exceeded the limit. This doesn’t give you very long to work it out. This can be a big problem for businesses who tend to review their accounts only once a year – often when the tax return is completed which could be a year too late!
- By registering early, you can make sure you have considered VAT in your pricing. That way there won’t be a sudden increase in your prices (or alternatively fall in your profits) if you do reach the threshold.
The potential downsides of registering:
- You will have more paperwork and returns to complete for HMRC. VAT is usually worked out and paid quarterly. If you do not submit your VAT returns on time you could end up with penalties from HMRC.
- If you are not able to prepare your VAT returns yourself this may mean the additional expense of asking a bookkeeper or accountant to help you out.
- Once VAT registered you will have to charge 20% VAT on your sales. This might mean your prices become less competitive. If you do not feel that your customers will pay the increase in your prices, this might mean a drop in your profits. Consider whether the majority of your clients are businesses or consumers. If they are businesses are they likely to be VAT registered themselves? This will help you work out the impact that your registration could have on your customers.
Every business is different, so it is always a good idea to discuss your options with an accountant before making any big decisions.
Drop me an email if you would like to discuss what would be best for your business.