This is a guest post by Peter Smallwood, VAT consultant at Haines Watts Leeds.
By law, UK businesses need to register for VAT when their taxable turnover (which includes zero rated sales) goes above the £85,000 threshold. When starting a business, especially on a shoestring, paying this tax can be a daunting prospect.
Small business owners often manage admin and tax themselves and may be tempted to put off registering it, as in many cases it is NOT advantageous for a business to register for VAT in advance. However there are indeed advantages if you decide to register your business for VAT in advance. Have a look at some of the advantages explained below:
Voluntarily registering your business for VAT gives the impression that you are a successful business as you appear to be operating above the threshold. Also, many larger businesses choose not to trade with non-VAT registered organisations, so this could be a way to attract large pieces of business.
One large potential benefit from VAT registration is that you can claim back the VAT you’ve paid on goods/services over the past 4 years – so you can actually receive money back from the HMRC in VAT refunds!
From your date of registration the time limit is:
● 4 years for goods you still have, or that were used to make other goods you still have
● 6 months for services
If your business is doing well and you’re close to the threshold, it can be easy to exceed the limit without realising. This can trigger unwanted HMRC investigations and business record checks. Registering in due time helps avoid any late registration penalties.
As mentioned, there are many cases when registering for VAT in advance would not be beneficial due to higher costs and increased paperwork. In some circumstances these drawbacks will be so significant that they entirely outweigh the advantages so it is important that you take advice about VAT prior to registering.
If you want to register for VAT then this can be done online or with the help of an accountant. You will need some business information such as your Unique Tax Reference, bank account details, company number, registered address and details of any associated businesses from the past two years.
VAT registration is a big step forward for growing businesses. Understandably many business owners would not consider voluntary VAT registration due to the prospect of increased paperwork and bills from HMRC. But voluntary VAT registration can also be a good financial decision, just make sure that you properly consider all potential outcomes, and seek advice from your accountant before you do.
For more information, go to the Haines Watts Leeds website.