One of the many questions that a new business owner faces is:

“Should I Register for VAT?”

It’s a simple question and easy enough to register. However, it can have quite an impact on your business.

Before we get into this, let’s start with:

A brief introduction to VAT

If your business is VAT registered you will be required to add VAT (currently 20%) to your sales prices. This explains the difference between:

Net Price – Excludes VAT
Gross Price – Includes VAT

It is effectively a tax added onto your sales, which you then need to pass onto HMRC.

On the bright side, if you’re VAT registered, you’ll be able to claim back the VAT you paid on your purchases from HMRC

This means VAT is continuously added and then claimed back from supplier to customer until it reaches someone who can’t claim it back! Usually the end user.

The devil is in the detail, and there’s a lot more to it than this. But let’s leave that until another day…

Do you have a choice about registering?

If your taxable sales are over a certain threshold (currently £85k) either:

In the last 12 months
In the next 30 days

You are required to become VAT registered.

Otherwise, you could choose to Voluntarily Register for VAT.

Why would you want to register for VAT if you don’t have to?

The 3 most common reasons are:

In most cases businesses are financially better off being VAT registered
Being VAT registered can make your business appear more professional
Gets it out of the way. Rather than worrying about it when your income exceeds the registration thresholds

Things to Think About:

1) Your Business

VAT can be complicated. It depends

on what you sell, where you sell it, to who you sell it and what they use it for.

Fortunately, not all the rules will apply to you. The challenge is knowing which ones.

Some businesses produce goods that are zero-rated. Which means that no VAT is due on their sales, but they can still claim the VAT charged on their purchases.

There can be other implications if you sell abroad. Especially if selling digital services to private consumers, as you may find you need to comply with other rules. (This is VAT MOSS, which is outside the scope of this article).

Definitely worth doing your homework. I’d strongly recommend getting some professional help.

2) Your Customers

If your customers are VAT registered they will be unaffected by whether or not you add VAT to your prices. However, this could have an impact on any unregistered customers, who would have to add the VAT to the final price they pay. How important this is depends on your competitors.

There is also the matter of how your business is perceived. Most people like the comfort of dealing with a bigger company that’s here for the long-haul. While registering for VAT doesn’t suddenly make you a corporate giant, not being registered proves that your turnover is below a certain level.

3) Your Business' Growth

If you reckon you’re going to go over the threshold in the foreseeable future, it might be worth getting the VAT registration out of the way. This will save you having to keep on top of the last 12 months income. Also, it will save you having to suddenly add VAT to your prices.

This isn’t great if selling to the general public, who might not welcome a 20% price hike over night.

Though, factoring this into your pricing from day one might give your business a boost.

4) Your Suppliers

You can claim back the VAT charged on your purchases if you’re VAT registered. While most businesses tend to be financially better off when registered for VAT, this might not be the case if most of your suppliers don’t charge VAT in the first place.

5) Your Accounting Systems

If you have good accounting systems and review your finances regularly, submitting a VAT return shouldn’t be that onerous. However, this isn’t always the case.

You might get away with having 9 months to put your annual accounts together. However, having a month to put together a VAT submission every quarter is a different matter. You’ll have to have systems in place and maybe get some outside help.

Unsurprisingly, I believe it’s just good business sense to be on top of your finances. Something to consider, regardless of your VAT position.

6) Your Other Businesses

You’ll be asked about your other businesses when you register for VAT. This is to prevent people running one business for those customers that can claim back VAT and another for those that can’t.

If you have another similar business, you might need to register both.

If you are a sole-trader, you will be VAT registering yourself as an individual. So, if you have other businesses (as a sole-trader), they will also have to start charging VAT.