Some business owners will want to delay registering for VAT until absolutely necessary, whereas other business owners will want to register for VAT sooner, (especially if they make a lot of vatable purchases or they tend to deal with larger VAT registered firms). You must register your business for VAT with HM Revenue and Customs (HMRC) if its VAT taxable turnover is more than £85,000. However, if your VAT taxable turnover is below this amount you can still register.
What is VAT?
Value Added Tax (VAT) is charged on the majority of goods and services provided by VAT-registered businesses in the UK. VAT-registered businesses add VAT to the sale price of goods and services they sell to both commercial and non-commercial consumers. Generally, these businesses can also reclaim VAT paid on the goods and services they buy. So, what are the pros and cons of optionally registering for VAT?
Pros of Voluntarily Registering for VAT
- VAT can be applied to the sale cost of almost all goods and services offered
- VAT can be reclaimed on most goods or services purchased from other businesses
- Small businesses can give the appearance of being bigger and more established. This can be very appealing to clients, lenders, investors, and suppliers because they will assume the company’s turnover is more than £85,000
- VAT-registered businesses are given a VAT number. This can be displayed on invoices, letterheads, websites, and other forms of business stationery. Again, this can be appealing to other firms, many of whom may not be willing to get involved with a business that is not VAT registered and, therefore, considered too small
- Voluntary registration can be backdated by up to four years if sufficient evidence can be supplied to HMRC. This means that a business may be able to reclaim VAT paid on equipment that it is still using
Cons of Voluntarily Registering for VAT
- VAT could hamper the appeal of goods and services to customers who are not VAT registered, particularly if the final cost of the sale is deemed unreasonable or overpriced
- Businesses could end up with a large VAT bill from HMRC if they generate more VAT from goods and services sold than the VAT paid on goods and services bought from other businesses
- Extra paperwork and more administration are unavoidable consequences of VAT registration. Businesses need to keep all VAT invoices and receipts, maintain VAT accounting records, and file VAT returns every quarter (i.e. every three months
- Businesses that are not VAT registered cannot reclaim any of the VAT they pay. You have to be registered for VAT to be able to charge or reclaim this tax on anything you buy or sell.
So How Do I Register For VAT?
VAT registration can be completed online through HMRC which is a quick and simple process. It is important to remember that during the time it takes for your VAT application to be processed, you should start keeping records, accounting for VAT, and retaining all relevant invoices and receipts. You cannot, however, start charging VAT or showing it on any invoices until HMRC sends you a VAT registration number, but you can adjust your prices to reflect the amount of VAT that you plan to charge. Once registered, you will be required to submit VAT Returns either monthly, quarterly or annually. Here at Outsourced ACC all our Accountants are on hand to deal with your VAT Registration process right through to managing, preparing and Submitting your VAT Returns to HMRC. Please feel free to give us a call on 02082496007 or pop in for a chat if you wish to discuss further.
Written by Tricia Carr