VAT or value added tax is charged on most commercial transactions in the UK, but registration is only a requirement for businesses that do a certain amount of business. As of the Spring Budget released in 2017, the threshold for mandatory VAT registration is £85,000, but if the current trends hold, this threshold will increase slightly each year.
If your business has a VAT taxable turnover of more than £85,000, registration is mandatory, but many small businesses and self-employed individuals conduct business at a lower threshold. This leaves open the question of whether or not it is worth registering voluntarily, which has certain advantages and disadvantages.
If you register, you must charge VAT on all your non-exempt sales and remit it to HMRC, but at the same time, you are also eligible to reclaim any VAT spent on business-related purchases and deduct it from the VAT you collected on your own sales.
So when does it become worthwhile to voluntarily register for VAT? It depends on a number of factors. The most important element to consider is who your typical customer is. If they are a VAT registered business, it will not affect their bottom line at all as they will also be able to reclaim the VAT that they have paid to your business. They will be perfectly comfortable with this process, and it won't cause any friction or financial difficulty for them.
On the other hand, if your customers are typically small businesses or individuals who are not VAT registered, they may be somewhat less pleased to see an additional 20% on their bill. This may have the effect of driving them into the arms of any of your competitors who are not VAT registered, or it may simply make them less likely to become a return customer. The only solution to this problem is to take the financial hit yourself through a reduction in profit, but a 20% reduction in your gross income is usually more than most businesses can comfortably bear.
In the end, deciding whether or not to voluntarily register depends on the unique nature of your business. Take a close look at your typical expenses and your typical customers, and you'll be able to determine relatively easily whether or not it is a viable strategy.
If your business has a VAT taxable turnover of more than £85,000, registration is mandatory, but many small businesses and self-employed individuals conduct business at a lower threshold. This leaves open the question of whether or not it is worth registering voluntarily, which has certain advantages and disadvantages.
If you register, you must charge VAT on all your non-exempt sales and remit it to HMRC, but at the same time, you are also eligible to reclaim any VAT spent on business-related purchases and deduct it from the VAT you collected on your own sales.
So when does it become worthwhile to voluntarily register for VAT? It depends on a number of factors. The most important element to consider is who your typical customer is. If they are a VAT registered business, it will not affect their bottom line at all as they will also be able to reclaim the VAT that they have paid to your business. They will be perfectly comfortable with this process, and it won't cause any friction or financial difficulty for them.
On the other hand, if your customers are typically small businesses or individuals who are not VAT registered, they may be somewhat less pleased to see an additional 20% on their bill. This may have the effect of driving them into the arms of any of your competitors who are not VAT registered, or it may simply make them less likely to become a return customer. The only solution to this problem is to take the financial hit yourself through a reduction in profit, but a 20% reduction in your gross income is usually more than most businesses can comfortably bear.
In the end, deciding whether or not to voluntarily register depends on the unique nature of your business. Take a close look at your typical expenses and your typical customers, and you'll be able to determine relatively easily whether or not it is a viable strategy.
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