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Do I need to register for VAT?

The general rule of thumb is that you need to register for VAT if your taxable turnover is £85,000 or more in any 12 month rolling period. You can apply for an exemption from registering for VAT if you believe that your VAT taxable turnover will only briefly exceed the threshold i.e. you are expecting a large order next month that will take you over the threshold for VAT, but you fully believe that sales will drop in the following month.

To calculate your VAT taxable turnover, you need to add together the total value of UK sales that are not  VAT exempt, including:

  • business goods you've used for personal reasons

  • services you received from businesses in other countries that are subject to the reverse charge (this means that you have to add the value of the services you've paid for into the value of your sales for the purposes of calculating your VAT taxable turnover)

  • goods that have been hired or loaned to customers

You should still include goods and services that you've sold that are zero rated.

Is it worth registering for VAT?

 

There are many pros and cons when considering whether or not it is worth registering for VAT. We'll cover a few of them here.

Advantages of registering for VAT:

  • You'll be able to recover any VAT spent on goods, services and assets purchased for business use. This is called input VAT.

  • Some businesses believe that it adds status and some companies have policies whereby they will only deal with other VAT registered businesses. Other businesses may also make assumptions about your level of turnover as they know you're below the £85,000 threshold.

  • It is actually beneficial for some businesses to register for VAT e.g. businesses that sell only fresh food, coffee or baby and children's clothing (to name a few). These types of goods are zero rated for VAT purposes which means that the VAT that you charge on the sale of goods in 0%.

    • You're still able to recover input VAT when selling zero rated goods and so you may end up being able to claim a VAT refund if the VAT on purchases exceeds the VAT on sales.​​

  • If you only make business to business sales (B2B) to other VAT registered companies, you won't have to worry about how your customers feel about price increases as they'll be able to recover the VAT that you've charged as input VAT.​

Disadvantages of registering for VAT:

  • You could end up paying out more to HMRC if your output VAT (the VAT that you charge on sales) is higher than your input VAT.

  • You'll have to file a VAT return (usually quarterly) using MTD compatible software like Xero, Sage or Quickbooks (a list of which can be found here) most of which carry a cost and some of which are only accessible to accountants.

  • You'll spend more time on paperwork and less time on running your business.

  • If you deal primarily with retail customers (B2C) or non-VAT registered businesses then you'll either have to pass the cost on to them, or take the hit yourself.

If you're below the VAT threshold then it is definitely worth weighing up the pros and cons before making a decision. If you're above the VAT threshold then you're legally required to register.

How do I register for VAT?

It's pretty easy to register for VAT by either logging in to your Government Gateway account and clicking on the link that says "get access to a tax, duty or scheme" or by following the HMRC guidance on VAT registration found here.

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