If your sales income goes over £85,000, or you believe that it will, your business will be required to register for VAT.
Once your business becomes VAT registered your business will be required to charge VAT onto your customers, usually at the standard rate of 20%. This means if you would usually charge £100 for your service, upon VAT registration you would then charge £120. The £20 VAT will then go to HMRC.
Some services have a reduced rate of VAT, therefore if you do not specialise in VAT you will need expert advice to guide you, that’s where we come in!
Voluntary VAT Registration
Even if your sales are under £85,000 you may still choose to voluntary register for VAT, but why? See below the Pro’s and Con’s of VAT registration to determine whether your business may benefit from a voluntary registration.
Pros of VAT Registration
- You can reclaim the VAT on most products or services purchased from other companies
- You can enhance your image if you are a small company by being VAT registered, other businesses may deem you to be more credible as they will assume your sales are in excess of £85,000
- VAT can be reclaimed on equipment bought four years prior to registration (providing that sufficient evidence is supplied)
Cons of VAT Registration
- It’s not guaranteed that all of your customers will also be VAT registered, which means that they will be unable to reclaim the VAT you have charged. Competing against other businesses who are not VAT registered you’ll automatically become 20% more expensive than them
- Quarterly VAT returns are required to be submitted to HMRC digitally, this will require bookkeeping to be kept up to date on digital accounting software, this isn’t necessarily a bad thing, by keeping an up to date accounting function you will be able to plan your business and cash flow better. See our guide to cloud accounting here.
If you believe your business would benefit from voluntary registration or believe that your sales are already exceeding £85,000 or are currently VAT registered but require some assistance with your VAT returns, please do not hesitate to contact us here at the office where a member of our accounts team will be able to assist you.
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