It’s important to keep an eye on your VATable turnover. If you expect you will hit the threshold of £85,000 you must let HMRC now. Even if you’re not close to the VAT threshold you can decide to register voluntarily, so we’re going to explore the pros and cons of registering for VAT.
Pros
When you register for VAT you will need to start applying VAT to all of your sales invoices unless the goods or services are exempt from VAT. You’ll also need to include your VAT number on all correspondence including your website. If you’re trying to grow your business then being VAT registered can show your credibility and success to your potential clients. If they are VAT registered this means they will be able to claim the VAT against their VAT bill so it can be quite beneficial for them too.
If the majority of your suppliers are VAT registered then this could mean your VAT bill could be reduced.
If you decide to register for VAT voluntarily you can claim the VAT back on purchases for the last 4 years and on services for the last 6 months. Of course you need to keep proof of your purchases in order to do this.
Cons
Becoming VAT registered when not many of your suppliers are VAT registered could mean your VAT bill doesn’t get reduced so the amount you receive in VAT would be how much you need to pay to HMRC. If this is the case it wouldn’t make good business sense to register for VAT voluntarily. The amount of VAT you pay out must be more than the amount you receive in order for it to be beneficial to your business. Of course if you hit the threshold you won’t have much choice about the situation.
Being VAT registered means more admin for your business so you’ll have some more work to do, unless of course you hire a bookkeeper or accountant to take care of it for you.
Every business is individual and will have different requirements so it’s important you have a discussion with your bookkeeper or accountant before making the decision to voluntarily register for VAT. You’ll need to weigh up the pros and cons for your business.
If you’re VAT registered it’s important that you put any VAT you receive to one side ready to pay your VAT bill.
If you need some advice when it comes to VAT registration please get in touch.
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