Is It Worth Expanding Your Business to Go Above the VAT Threshold?

15 June 2015, 15:55

At the time of writing the VAT threshold is £82,000. That’s a drop in the ocean if you happen to own a huge business with a turnover of hundreds of thousands of pounds a year. However if you run a small business with a turnover of, say, £60,000 a year, you’ll be well under the level at which you’d have to register for VAT.

Some business owners decide to register anyway, even if their turnover is well below the limit. This is so they can claim back the VAT on purchases they make for their business. A lot could depend on whether they make a lot of purchases. Buying stock would certainly incur VAT, but someone who writes for a living and therefore buys very little to use for their business may not worry about it.

But there is a bigger question here. Suppose your business has a turnover of £74,000. That’s only a few grand short of the threshold. Now you have a decision to make. Do you expand your business and keep on increasing your turnover so you eventually register, or do you hang back and make sure you stay just under the threshold?

Different people will no doubt have different answers to this. Some would naturally want to expand and bring in more revenue, even though that would mean registering for VAT. Others might consider the extra work involved and the payments they’d have to make and decide to stay just underneath the threshold. Certainly, some have found that if you go just over the threshold you could end up paying more in VAT than you gain in additional revenue. So it is worth considering this from all angles to see what approach would suit you best.

There is also the question of whether your business is large enough that you have someone on board already who can handle the VAT returns. If you are on your own you’ll have to find time to handle these, or hire an accountant to help. In the first case you’ll get faster over time but you still have to allocate a period of time every three months to get the work done. In the second case you have the additional accountancy charges to think about.

As you can see if you are close to the current threshold it is worth considering how you want to approach the situation. Perhaps you want to put together a plan so you can find out exactly what is required of you and what you’ll need to do once you do register. You can then work out whether you would feel able to do the return yourself, or whether to get someone else on board. Either way you are in a good position to consider how to take your business forward from here.