When the taxable turnover of a business reaches, or is likely to reach, the threshold of £82,000 over a period of 12 months, the company has to register for VAT with HM Revenue & Customs (HMRC). If during the coming 30 days a company is likely to reach the threshold for registration of VAT, it must register immediately. Many business owners may wonder why they would register voluntarily for VAT, but there are a number of benefits for doing so.
Should I register for VAT?
Before making a decision to register when your turnover is below the threshold, take some time to consider the potential disadvantages. Once you register for VAT, even if you volunteered to do so, you will have to abide by the legislation and complete VAT returns in a timely manner.
Consider whether adding VAT to your product or service would make it appear to be overpriced. Clients may be put off your goods if the price is inflated, especially if they aren’t registered for VAT, as this means they can’t claim back the VAT they have paid.
The process often results in more administration, which can be a burden for a small company, although it is possible to outsource to a complete accounting service. Although VAT returns must be submitted regularly, the effort is often worth it to some businesses.
Reasons to register for VAT
There are a number of benefits for a small business, potentially making cash flow a lot healthier. One of the reasons why a company registers for VAT is to be able to charge the tax on goods and also claim it back when it is paid on goods for the business. This is the output and input tax.
Some companies will only trade with businesses that are registered for VAT, so taking this step voluntarily can make it easier to gain contracts. If a business only sells products that are zero rated, it can still claim back VAT paid on standard-rated goods. It is also possible to register for VAT on a voluntary basis and backdate the claim for four years, as long as you can provide documentary evidence for HMRC.
By registering voluntarily before reaching the current year’s threshold, it saves a company having to amend prices to include VAT and making sure its accounting system is able to cope.
If you are considering registering for VAT, contact us to discuss your options today.