Should I register for VAT?

Should I register for VAT?


Value Added Tax (VAT) is a tax levied on the sale of certain goods and services. There are different rates of VAT which apply. Suppliers are either exempt, zero-rated or chargeable. Currently chargeables supplies are at 5% or 17.5%.

Do I have to?

Registration for VAT may be compulsory, depending on the level of current or future turnover of the business. A business can voluntarily register for VAT; however, in order to register, a business must either be making taxable supplies (sales where VAT would apply) or intend to make taxable supplies in the future.

The two most common cases where a business must register and charge VAT are:

  • A non-registered business making taxable supplies whose value exceed £70,000 within the last twelve months or in a shorter historical period
  • Where the value of taxable supplies is expected to exceed £70,000 within the next 30 days alone

Why voluntarily register?

  • To claim input VAT back on larger capital  investments
  • If the majority of your purchases are vatable there will some inputs to reclaim
  • To give the impression of being a ‘larger’ business to your customers
  • Your customer base is predominantly VAT registered and would expect to claim back their ‘input’ VAT

The downsides of VAT registration

VAT registration does comes with some major drawbacks.

  • Potentially higher costs

As a VAT registered business you are obliged to charge VAT on any relevant goods or services. You can reclaim the VAT you pay; however, generally your output tax will exceed your input tax.  The difference is paid to HMRC. This can create cashflow and financial planning problems for a small business.

  • Increase paperwork

Most businesses are requried to file a quarterly VAT return. There are significant penalties for late filing and late payment.

It could quite easily be argued that the requirement to maintain quarterly records is a benefit as there are many small businesses who see accounts as an end of year requirement!

VAT registration and administration can be complex; but is often simple if the correct tools are applied. Most businesses benefit greatly from taking specialist advice at the outset to discuss their options. Speak to either a bookkeeper or accountant who will be only too happy to help.