Should I / Do I Need To Register for VAT
Friday, August 7th, 2020 in: Advice
Should I register for VAT? Do I need to register for VAT?
When you start a small business one of the major milestones is registering for VAT. Understandably most business owners do not know what VAT is and whether it is something they should or can register for. In this post, we will explore what VAT is and also if and when you should register for VAT.
Types of VAT registration
There are two types of VAT registration, compulsory VAT registration and voluntary VAT registration.
Compulsory VAT registration
This is the most common type of VAT registration as it is all about what you have to do. In other words, you have no choice but to register for VAT under certain conditions. At the time of writing this article, the VAT registration threshold was £85,000 in business turnover. This means that as soon as your sales/revenue hits £85,000 in any 12-month rolling period you are required to register for VAT. In some instances, your services may be outside the scope of VAT so registration is not a requirement. For the purpose of this article, we will not discuss in detail exempt supplies.
Voluntary VAT registration
Voluntary VAT registration is where you have not hit the registration threshold but you choose to register for VAT off your own back. The typical type of situation but this happens is in a business to business organisation that can simply add VAT onto the margin without it affecting your own profit. Whereas a business to customer organisation such as a fast food restaurant cannot simply increase their margins by 20% because the customer has no way of claiming back the 20% whereas a business that is VAT registered can claim back the VAT it has paid out. In some instances restroom for VAT before you are making any sales can be beneficial so that you can claim back the VAT on your start-up costs and equipment.
To get back to the main purpose of our article for VAT registration, depends on whether you have gone above the compulsory threshold and also whether there is going to be a benefit in making a voluntary registration. If you are about to hit or have already gone above the compulsory VAT threshold of £85,000 then yes you should and actually need to register for VAT. In other circumstances, if you have a business where your customers are all VAT registered businesses themselves then you may consider making a voluntary VAT registration to enable you to claim back the VAT on your own expenses.
What is VAT?
We have some extensive resources around VAT including what is VAT, should I split my business to avoid VAT, VAT calculator and many other things. You can find these resources from this link.
We have recorded a short video to summarise some of the key points with whether to register for VAT.