Starting a business? Unsure if you should register for Value-Added Tax (VAT)? Get in touch and we’ll explain the most appropriate time for you to register.
When first setting up your business, there are multiple decisions to make. A key consideration will be whether to register the business for Value-Added Tax (VAT), the tax that’s added onto the price of certain goods and services.
When does Value-Added Tax (VAT) registration become mandatory?
If your business’s turnover reaches £85k over any rolling period of 12 months, it’s currently mandatory for you to register for Value-Added Tax (VAT). Because of this, it’s important to keep an eye on your turnover and to start making plans for VAT registration as you get closer to the threshold.
You have 30 days to register for VAT after hitting the threshold (which is currently £85,000), so it’s important that you keep accurate and up-to-date records so that you do not miss this deadline. HMRC will issue penalties if registration is overdue.
Is it better to be VAT-registered?
If your customers are VAT registered, it’s always best to register – as long as you don’t mind factoring in the minor administrative work that’s required.
As a VAT-registered business, you can add VAT to your selling prices without it actually costing your customers more – VAT registered customers just claim the VAT back from HM Revenue & Customs (HMRC). You can also reclaim Value-Added Tax on your own expenses in the same way. If the administrative work is a concern, the flat-rate scheme is a more straightforward alternative.
What happens if my customers aren’t VAT registered?
If you’re a business-to-consumer (B2C) company, your consumer customer base is unlikely to be VAT registered. In this circumstance, if you charge your customers Value-Added Tax, they’ll end up paying more for your goods/service – which could affect your competitiveness in the marketplace.
Think about whether this additional VAT cost is likely to have an impact on your sales. Then weigh that against the additional costs you’ll incur if you don’t register – and, as a result, can’t reclaim VAT on your costs.
Why would I register early for Value-Added Tax?
Legally, you don’t have to register for Value-Added Tax until you meet the £85k threshold, however, some businesses operating below the registration threshold choose to register voluntarily.
Some companies believe being VAT registered makes the business look more substantial and professional. And some businesses will register to make use of the ability to claim back VAT on certain business expenses, especially if these are for significant assets.
Talk to us about registering for VAT
For a new business, even if you anticipate that your sales will go over the £85,000 registration threshold in the first year, there may be advantages in delaying registration until you have to. Equally, there may be benefits in registering even if you are trading below the threshold.
Tell us about your business plans and we’ll be happy to advise you on the best point in the business journey to register for VAT. Our article on what VAT is and how it works for business owners will help give you more of an understanding too.
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