Many small businesses go along quite happily from year to year, sitting well underneath the threshold at which you need to register for VAT.
But how close are you? Do you know what the threshold is at the moment?
They say that knowledge is power, and it can certainly save you from landing in a sticky spot if you don’t know where you stand with VAT. You’ll need to be making more than £67,000 a year according to the most recent figures to register for VAT. So as soon as you start getting close you need to be aware of where you stand.
Some people actually make sure they stay just underneath it – and for good reason as well. You see, if you go over it you have to start working out how much VAT you should be paying on a quarterly basis. On some occasions the VAT man may owe you money – but it will depend on your own personal situation as to whether that is the case or not.
The problem is that if you go over by just a small amount – let’s say by £1,000 or so – you could end up having to pay several thousand pounds in VAT as a result. So you see, earning an extra £1,000 could actually be an expensive move!
This is why it pays to keep an eye on your figures and start doing your accounts on a monthly basis once you get close to it. This way you won’t get caught out by going slightly over.
So does this mean there is a ceiling on what you can earn as a business if you don’t want to pay VAT?
Well it does in a way, but all it means is that if you are going to start paying VAT you need to make sure you go well over the threshold in order to make it worth your while.
So think about how you could develop your business so that you earn a lot more money in the future. Make sure you are ready to make that move – and figure out in advance how you can prepare for it as best you can.
Many people don’t develop their businesses as well as they could. Quite often there are businesses that get to a certain stage of success and then settle. It’s almost as if they are quite content just to carry on as they are and not consider going to the next level.
Of course provided you are prepared and knowledgeable about what you need to do once you get over the £67,000, there is no reason why it shouldn’t be a resounding success. It can be a huge step to get to be VAT registered, but once you get there you will find that it opens up a whole new area in which you can develop and bring in extra cash.
So ask yourself where you are now, and where you want to be – and figure out where you stand in terms of VAT.