When should you register for VAT?
The most common reasons that you must register for Value Added Tax (VAT) are:
- You expect you VAT taxable turnover to be more than the VAT threshold in the next 30-day period. If this happens you need to register by the end of the 30-day period with the effective date of VAT registration being the date you realised.
- You had a VAT taxable turnover of more than the VAT threshold in the past 12 months. This is on a rolling month basis, i.e. at the end of each calendar month you need to calculate if you have exceeded the VAT threshold in the previous 12 months. You have 30 days from the end of the month that you exceeded the threshold to register, and your effective date of VAT registration is the first day of the second month after you went over the threshold.
- Acquisition/take-over etc of a VAT registered business may mean you have to register for VAT with the effective date being at the point of acquisition.
The VAT threshold is set by the government and varies periodically. At the time of writing it is £85,000.
Please be aware that there are certain other circumstances that may mean you need to register for VAT. There are different rules if you and your business are based outside the UK. If in doubt speak to an expert.
What if I just temporarily went over the threshold?
Examples of this may be a one-off large contract, job or sale. You may apply for exception from registration. You will need to explain to HMRC why you went over the VAT threshold and why you consider that your business VAT taxable turnover will not exceed the deregistration threshold (currently £83,000 at the time of writing) in the following 12 months.
Can I register for VAT even if the rules do not require me to?
Yes, this is possible in most circumstances. Examples of why HMRC will reject an application include; if they don’t believe that you are carrying out a business or that the type of sales your business makes are exempt or outside the scope of VAT.
This may be beneficial to you, examples include:
- Some customers perceive a VAT registered business to be more reputable than a non-VAT registered one.
- If you are not VAT registered it can act as flag that your business is small to customers ie sales below the VAT threshold. This may or may not be an advantage.
- You can claim VAT back on your business purchases and expenses. This needs to be considered in turn with if you will need to reduce your prices if you were VAT registered, e.g. if your customers were individuals and not VAT registered businesses. If you sell mainly to businesses that are VAT registered, then they will be able to claim the VAT back on your sales. So, you will not be any more expensive to them by simply adding VAT to your prices.
There are of course, some disadvantages of registering for VAT, with a major one being the additional administrative burden.
For how to register for VAT visit the HMRC website.
We can advise on VAT registration, voluntary registration and the registration process. For further information please contact us.