Business owners have many complexities to deal with. You’ve spent some time shaping your business and crafting your goals. The revenue is starting to trickle in, and everything is going well. But there’s one question stuck at the back of your mind: Should you register for VAT?
People often come to us with many misconceptions surrounding VAT. You may be aware that the VAT threshold is currently £85,000, and anyone whose business turnover is above that threshold needs to register for VAT purposes. As a business owner, VAT registration may be a necessary route for you to take as it can ensure you are ready to grow your business, as well as create a positive impression about your future goals.
With that in mind, it’s also important to consider what benefits are available for registering even if you are still below the VAT threshold. Sometimes voluntary VAT registration can pose benefits, but it can also have lasting implications for the financial health of your business. So, to answer the common questions, we’ve put together this post to help you analyse whether voluntary VAT registration is a sensible option for your business, and the benefits it can present to you.
Boost your business profile
Start-up businesses often have it tough, especially with all the goals you’re wanting to achieve. Turnover, staff, growth – they’re all big aspirations, but at the same time you’re constantly reminded that you are competing against the bigger companies.
In instances like this, voluntarily registering for VAT can help your business appear larger and more successful than it actually is. Your clients will more than likely be aware of the current VAT threshold, and not being registered means they will automatically make assumptions about your turnover being lower than that. Because of this, being VAT registered could be considered an aid in helping you stand alongside your competitors, and increase your reputation amongst your client base.
Boost your business revenue
There are a whole heap of financial benefits to being VAT registered, which can add up to increased revenue for your business.
For instance, voluntary registering means you are immediately avoiding any angry letters from the taxman. As an example, if your turnover was to increase over the VAT threshold without you knowing, failing to register could land you a nasty fine for your business. Registering voluntarily obviously eliminates the worry of passing the threshold and not notifying HMRC in time, meaning you inevitably avoid paying any fines. Better still, you might actually receive money back from HMRC in the form of VAT refunds. Your accountant can also advise you on this to make sure that you are taking the best course of action for you and your business.
However, it is important to remember that charging VAT will increase your prices by 20%. This won’t affect VAT registered customers however as they will be able to claim the VAT back. As a VAT-registered business, you are able to claim VAT back on any goods or services purchased for your business.
All of these benefits all have one common and significant advantage: More revenue for your business. The money you’ve been able to claim back could help towards your business. You could reinvest it back into your business to help you strive towards those business goals, or store the money away for any future business investments.
But isn’t VAT registration more expensive?
Whilst there are a lot of benefits to becoming VAT registered, it can present potentially higher costs, as you are obliged to charge VAT on any relevant goods or services. In any instances where the VAT you charge exceeds the VAT you pay, you will be liable to pay the difference to HMRC.
And what about the paperwork?
Quite often business owners don’t have the time for even more admin. But it goes without saying that VAT registration comes with additional responsibilities.
From quarterly VAT returns, to regular reporting, to upgrades in your accounting software – there’s a lot to be done, and if not done right, there are also significant penalties for late filing and late payment.
Where to go for more information
VAT registration is obviously a big step for any business owner. You might initially be put off at the thought of voluntary registering just by the idea of increased paperwork and potential hefty bills from HMRC.
But it can ultimately be a good decision for the financial standing of your business. In any case, there are lot of outcomes to consider, and you should always seek advice from your accountant before making that decision. You can also read more about VAT registration, the process, and use the VAT calculators on our website.
As always, our team are on hand to provide advice and assistance with your business and chat to you about whether VAT registering would be beneficial to you and your business. You can visit our website or call 01223 832477.