Quick Tips: Registering for Value-Added Tax (VAT)

When first setting up your business, there are multiple decisions to make – and a key consideration will be whether to register the business for Value-Added Tax (VAT), the tax that’s added onto the price of certain goods and services.

When does VAT registration become mandatory?

When your business’s turnover reaches £85k over any rolling period of 12 months, it’s currently mandatory for you to register for VAT. Because of this, it’s important to keep an eye on your turnover and to start making plans for VAT registration as you get closer to the threshold.

Is it better to be VAT-registered?

Where your customers are VAT registered, you’ll always be better-off registering – as long as you don’t mind factoring in the minor administrative work that’s required.

As a VAT-registered business, you can add VAT to your selling prices without it actually costing your customers more – VAT registered customers just claim the VAT back from HM Revenue & Customs (HMRC). You can also reclaim VAT on your own expenses in the same way. If administrative work is a concern, the flat-rate scheme is a more straightforward alternative.

What happens if my customers aren’t VAT registered?

If you’re a business-to-consumer (B2C) company, your consumer customer base is unlikely to be VAT registered. In this circumstance, if you charge your customers VAT, they’ll end up paying more for your goods/service – which could affect your competitiveness in the marketplace.

Think about whether this additional VAT cost is likely to have an impact on your sales. Then weigh that against the additional costs you’ll incur if you don’t register – and, as a result, can’t reclaim VAT on your costs.

Why would I register early for VAT?

Legally, you don’t have to register for VAT until you meet the £85k threshold. But some businesses operating below the registration threshold choose to register voluntarily.

Some companies believe being VAT registered makes the business look more substantial and professional. And some businesses will register to make use of the ability to claim back VAT on certain business expenses, especially if these are for significant assets.