VAT is one of those things that we all know about as consumers but never really understand properly until we run a business. Some people say we are unpaid tax collectors for HMRC… I wouldn’t like to comment 🙂 Regardless of that, rules are rules and VAT is here to stay. So let’s have a look at all the rules, the pros and cons of registering, and anything else useful to know. Ready? Then I shall begin….

All You Need to Know About VAT Registration

What are the rules about VAT in the UK?

The rules in the UK are simple (ish)

  • If your VATable turnover is above £85,000 then you must register for VAT.
  •  If your VATable turnover is below that then registering for VAT is optional.

VATable turnover is anything that you would normally charge VAT on. Eg to a UK customer.

If you are dealing with say a US customer you wouldn’t charge VAT so it’s not VATable.

How do you register for VAT?

Registration is simple, HMRC has an online service that you can register with. You’ll have to answer a few standard questions, and once accepted you’ll be issued with a VAT number. If you are a client of ours – simply send us an email “Oi Rob register me for VAT please” and we’ll get it done for you.

Should you register for VAT before you need to?

This is one of the most common questions we get, and in true accountant fashion, my answer is usually. “Yes, probably, but it depends…”

Depends on what? If you expect your turnover to reach the £85k threshold then I’d usually always advise registering before then so you can claim back VAT on your purchases right away. Especially when you are starting a business, you are going to likely be investing in all sorts of equipment and probably spending money to get going. So getting that 20% back on purchases from the government can really help cash flow.

If you aren’t going to get to £85k then you need to consider a few things before you register:

Who are you selling to? 

If it’s to businesses then charging VAT doesn’t really matter as they’ll claim it back anyway. So you get no disadvantage at the end of the sale, but get to reclaim VAT on purchases. In this case, you probably should register for VAT, it gives you more credibility and some businesses won’t even deal with you if you are not VAT registered…

If you sell just to consumers you need to consider the impact of charging an extra 20%. Will that affect sales hiking costs by 20%, or will you have to swallow some of that impact? Sure you might be able to claim back purchases but if your costs are low, that probably won’t offset the impact at the end of the sale.

Here’s a very specific situation where you might not want to register for VAT:

Let’s say you are selling a product with tight margins to a retail customer and never expect your turnover to exceed £85k.

In this instance, you’d probably lose out registering because:

  • You will have to pass that VAT onto customers who can’t claim it back (B2C)
  •  That may make the business unfeasible as margins are slim and your customers are price sensitive
  •  You aren’t obliged to register as you haven’t and don’t expect to reach £85k turnover

How do you complete a VAT return?

All returns are now completed online and are actually surprisingly simple. If you are doing it yourself you will log into your VAT account using the government gateway. Then enter your VAT qualifying sales and expenses for the return period. The form automatically calculates how much VAT you need to pay or how much you will receive as a refund. (if you instruct us to do it, we use special software that links into HMRC). There you have it, should you shouldn’t you. The decision is yours (if you’re under £85k that is!) There are my thoughts on it, if you want a more accurate assessment based on your specific circumstances you know who to call…:-)