The legal threshold when you are required to register for VAT is £82,000. However there are several reasons why you may consider a voluntary registration:
VAT registration can give your business the status of size and reputability. The very fact that you are not VAT registered advertises that your turnover is less than £82,000!
If most of your customers are VAT registered then they would be commercially neutral to your VAT registration. This is because you are no more expensive than a competitor that is not VAT registered as they can claim back your VAT anyway.
You may need to charge more if you can’t reclaim the VAT on your expenses, with higher costs you may need to be charge more than a VAT registered competitor.
You can backdate a VAT claim for purchases made before VAT registration. The time limit is 6 months for services and 4 years for goods that you still have or that were used to make goods you still have.
You will be better off as you are simply acting as a tax collector for HMRC ie you charge 20% on everything you sell and pay it over to HMRC. But, you are then allowed to claim VAT on any business expenses that you have incurred. This is how you benefit.
There are some downsides to being VAT registered to balance against the advantages above:
You will have to file VAT returns and pay your VAT every quarter by a certain date.
You are voluntarily introducing another tax to your business with all the deadlines, associated penalties, and the possibility of HMRC checks that go with that.
You may not want, or feel able to complete the VAT returns yourself without professional help. If you decide that you need help then the professional fees that you will incur will eat in to the savings that you benefit from by being VAT registered.
Alison obtained a First class degree in Accountancy and Management at UCLAN University. She then went on to qualify as a certified accountant in 2006 and became a founder member in 2011.
Alison trained at a practice in Liverpool and, within her 10 years there, she developed as an accounts manager and obtained a varied portfolio of clients which has provided her with a range of experience in accounts, audit, VAT and taxation. Alison specialises in giving sound jargon-free advice to a range of small and medium sized businesses.
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