Voluntary Registration for VAT

Some companies may choose to register for VAT voluntarily before they reach the VAT registration threshold, if this is something you have been contemplating then you’ve come to the right place! We are going to run through the pros and cons of registering for VAT so you can make the right decision for your company.

The VAT threshold

The VAT threshold is currently £85,000 for the 2017-18 tax year and will not change for two years from 1 April 2018. This means that you must register for VAT if your taxable supplies exceed (or you know that it will exceed) £85,000.
Most companies register for VAT very quickly, be aware that taxable turnover relates to turnover not profit. Taxable supplies are any products or services that are liable for VAT (including 0%) the only items which are not included within your taxable turnover are the VAT exempt items.

Often firms decide to register for VAT voluntarily before they reach the VAT threshold but this is a decision you shouldn’t take lightly and before doing so it is important to weigh up the pros and cons. When starting a business, it may be in your favour to register for VAT straight away, if you have a lot of vatable start up costs you will be able to reclaim the VAT on this (known as input tax). You will also set your sales invoices up with VAT from day one meaning you will not have to review your prices later.

We have compiled a list of pros and cons for registering for VAT before you reach the VAT threshold below:

Pros

  1. Registering for VAT can give the impression that your business is larger than it actually is. Most other companies will be aware of the VAT threshold.
  2. You can start reclaiming VAT on your purchases (there are rules around reclaiming VAT so do your research first!).
  3. Once you have signed up its another thing to tick off your list and you will not need to frequently make sure that you are not going over the £85,000 threshold.
  4. If you have signed up for VAT before you start giving quotes to customers then you will not need to increase your charges to incorporate VAT or swallow the cost.

Cons

  1. Submitting VAT returns – Depending on the transactions going through your business it could be anything from fairly simple to pull together a VAT return or extremely complicated. Finding a good accountant is a good starting point. Here at JVF Accounts we aim to support our clients as much as they need. A good accountant will show you the ropes around your bookkeeping if you want to take this on yourself and save yourself the cost or they can take the stress away entirely by dealing with your bookkeeping and VAT returns for you.
  2. You may not have many purchases or start up costs so you will have o pay VAT over to HMRC.
  3. If you have a small business and do not feel that the turnover will exceed £85,000 then it may not be worth registering for VAT.
  4. The deregistration threshold is £83,000.

We hope that we have managed to shed some light on a few of the confusions around voluntary VAT registration, if you would like more information on this topic or would like to get any accounting advice head over to our contact page and give us a call!