Should I be registered for VAT?
John Nuth - Friday, April 24, 2015
VAT registration is an area that is often misunderstood by business owners. While many are obliged to register for VAT, others choose to do so voluntarily. But when must you register, and when might voluntary registration be a good idea?
Do I have to register for VAT?
If, during the course of any 12 months, your ‘taxable supplies’ exceed the VAT registration threshold, you are legally obliged to register for VAT.
The VAT registration threshold is set at £82,000 for the 2015-16 tax year. ‘Taxable supplies’ are anything that is subject to VAT. So, if your turnover of taxable supplies exceeds £81,000, or if you know that it will, you must register.
There are a couple of things to remember here. First of all, the threshold applies to turnover rather than profit – so many firms will be obliged to register very quickly. Furthermore, ‘taxable supplies’ includes any product or service that is liable for VAT, at any rate – including 0 per cent. It only excludes items that are VAT exempt. It is therefore important that you understand the different VAT rates, and their impact on your business.
When is voluntary registration a good idea?
Many firms choose to register for VAT voluntarily, before they reach the threshold. This is a big decision that can have lasting implications for the financial health of your business, so it is vital that you think it through properly.
There are a few main reasons that you may wish to register for VAT voluntarily.
• Reclaiming VAT. Although you will have to charge VAT on your goods and services once you are registered (known as output tax), you will also be able to reclaim VAT that you are charged by other businesses. This is known as input tax. As long as your input tax exceeds your output tax in a given period, you will be able to reclaim the difference from HMRC.
• Building impressions. Some firms choose to register for VAT in order to appear larger than they are. Your clients will probably be aware of the £82,000 threshold – and if you are not registered they will know that your turnover is lower than this. You may therefore consider registration as a way of increasing your standing amongst competitors, and in the eyes of clients.