When Do You Need to Register for VAT?
In the UK, you’re required to register for VAT if your business’ taxable sales go over £90,000 within a 12-month period. But it’s not just about past performance; if you expect to cross this threshold in the next 30 days, you’ll need to register too.
Considering VAT Registration Before It’s a Must?
You might want to consider registering for VAT even if you haven’t hit the threshold. Here’s why it might be a good idea:
Advantages:
- Get Back What You Put In: If you’re shelling out VAT on your business purchases, registering allows you to claim it back.
- Look the Part: Having a VAT registration and VAT number might make your business seem more established, which can be a plus when you’re dealing with other businesses.
Drawbacks:
- More Paperwork: Registering means you’ve got more admin to manage, with regular VAT records and returns.
- Potential Price Increase: Adding VAT to your prices could make your services or products more expensive for non-VAT registered customers, which might deter some buyers.
Navigating Through VAT Schemes
HMRC offers a few different schemes that could make handling VAT simpler and more suited to your business needs. Here’s a brief look:
- Standard VAT Scheme:
- You pay VAT on every invoice you issue and claim it back on the purchase invoices you receive.
- VAT Flat Rate Scheme:
- This is only available for businesses with less than £150,000 in sales. You pay a fixed rate of VAT, based on the sector your business operates in, and keep the difference between what you charge your customers and what you owe HMRC. Note, though, you can’t usually reclaim VAT on purchases—except on certain bigger costs.
- VAT Cash Accounting Scheme:
- If your sales are under £1.35 million, this might work for you. You pay VAT only when your customers pay you, and claim it back only after you’ve paid your suppliers. Great for managing cash flow if payments are slow.
- Vat Annual Accounting Scheme:
- This scheme lets you file just one VAT return a year instead of four, suitable if you’re turning over less than £1.35 million. It simplifies paperwork and can help smooth out your cash flow.
Is VAT Right for Your Business?
Choosing to register for VAT depends on your specific business dynamics. If you work with a lot of VAT-registered businesses or you’re footing a lot of VAT on your own expenses, it could be beneficial. But if your main customers aren’t VAT registered, keeping your prices VAT-free could keep you competitive.
Wrap-Up
Deciding on VAT registration is a big step that can impact your business operations and financial flow. It’s important to weigh up the pros and cons in relation to what your business does and who it serves. Whichever path you choose, picking the right VAT scheme can help keep things running smoothly.
PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.
We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.
Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.
To find out how we can help you please get in touch now.
