Should I Register for VAT?

VAT registration is a major financial decision. While some businesses are forced to register for VAT, others can decide whether or not they want to take this step.

It is important that you understand the implications of VAT registration before leaping in. How will it affect your business? And is it the right decision at the current time?

Do I have to register?

There are circumstances in which your business may be obliged to register for VAT. If your turnover of VAT-liable goods or services exceed £70,000 within the previous 12 months, you must register for VAT. Similarly, you must register if you expect those sales to exceed the £70,000 threshold within the next 30 days. You must also register for VAT if you are taking over a business that you expect will exceed that threshold.

HM Revenue and Customs understands that businesses may enter the VAT registration briefly, for example if you make one very large sale. In these cases you may be able to apply for an exception, meaning that you will not have to register.

Can I register voluntarily?

You may choose to register for VAT even if your turnover does not exceed the threshold. This is a major step that can have serious financial implications, so you need to think it through carefully.

If you become VAT registered, you are legally obliged to charge VAT on any liable sales. You can also, however, reclaim VAT on purchases that you make from other VAT-registered businesses. If, at the end of each VAT accounting period, the amount of VAT you pay exceeds the amount you take, you can claim a refund from HMRC. If, on the other hand, the VAT you charge exceeds the VAT you pay, you will have to pay HMRC the difference.

There are advantages associated with registering for VAT. To begin with, it can help to give the impression that yours is a bigger organisation than it is. This is particularly important if you are dealing mainly with business clients; they will know the registration threshold, and will be able to tell that yours is a small company if you are not VAT registered.

You should consider the types of customers with which you do business. If your clients are mainly private individuals, they will not be able to reclaim the VAT – and, as a result, your prices will appear higher. On the other hand, if your customers are mainly VAT-registered businesses, they will be able to reclaim the VAT – and they will therefore be looking at your pre-VAT prices.

Can I deregister later?

It is possible to deregister once you have registered. In order to do so, you must be able to demonstrate that your sales will not exceed the threshold over the next 12 months.

In some cases, you will be obliged to deregister. This is most common when a company no longer makes VAT-liable supplies, or when it is sold. In these cases, HMRC will generally allow a period of 6 months’ grace to enable to company to complete the necessary paperwork.

As with all taxation matters, if you are in any doubt about VAT registration you should seek advice from an accountant.