Everyone knows about VAT, but for businesses, there is often a lot more to know and understand. If your business is bringing in more than £85,000 a year (the currency threshold beyond which a business must register), there is no choice about whether to register or not.
But what if your business is bringing in less than this? Is it best not to voluntarily register, or should you consider whether doing so might have perks you hadn’t thought about?
You should think about your clients prior to registering. Some may be impressed to see a VAT-registered business compared to one that isn’t, and may prefer to do business with one. This could be the case if they are VAT registered and can claim back the VAT they pay. However, if most of your clients aren’t registered, it could cost them more to do business with you if you are registered, compared to if you aren’t.
One perk of being registered is that you can claim back any VAT you pay on things you buy for your business. This should be displayed on invoices you receive from other businesses. However, you might end up paying out more VAT than you could claim back, which would mean registering wouldn’t be worthwhile.
There are clearly pros and cons to doing this. That’s why you shouldn’t make a quick decision on whether to register if you are thinking of doing so. It is usually best to take professional advice from your accountant first, as they will be able to advise you more readily.
You also need to think about the additional accounting processes you’ll need to follow if you do register. VAT returns must be made quarterly, as opposed to accounting returns for regular tax which are made annually. Do you have the time to devote to this – and more importantly, is that time worth anything you would get back in benefits for your business?
The one element you should bear in mind before registering is that it won’t suit everyone to do this. You must work out whether it will be beneficial for you before you register. If not, you can avoid doing so unless or until your business turnover reaches the level whereby you would be required to register. In short, some businesses will undoubtedly benefit from getting in on the act early. However, for others, it could turn out to be a bad financial decision. The trick is to know which side of the fence you fall on before you do anything about it. If you don’t know the answer, it could be a shock if you make the wrong decision.