Do You Have to Register for VAT?

For many small business owners, the question of whether they need to register for VAT or if they wish to do so voluntarily, can be confusing.

To help you out, here’s an overview of the rules regarding VAT registration, plus a look at the pros and cons of choosing to become VAT registered.

What Is VAT?

VAT stands for Value Added Tax. It’s a charge levied on the sale of most goods and services provided by VAT-registered businesses within the UK, along with some imported goods and services.

VAT-registered businesses are effectively acting as unpaid tax collectors, adding the appropriate VAT rate to everything they sell (usually 20%), then passing that amount on to HMRC every three months.

Do I Need to Register for VAT?

All businesses are obliged to register with HMRC for VAT once their VAT taxable turnover – the total value of everything you sell that isn’t exempt from VAT – reaches a certain threshold. In 2016–2017 that threshold is £83,000.

You must also register if you receive goods from the EU worth over £83,000, or if you expect to go over the threshold in a single 30-day period. (1) Failure to register could result in a fine.

The threshold changes on 1 April each year, but the VAT limit is calculated on a 12-month rolling basis from a particular point. You are legally obliged to register, even if you go over the threshold on a temporary basis. (2)

Should I Register Voluntarily?

Some businesses choose to register for VAT voluntarily, before they reach the threshold. There are several reasons for this.

VAT-registered businesses can claim back VAT on any goods and services they’ve purchased for their business – this amount is deducted from the amount you pay to HMRC. If your input tax (the VAT you want to claim back) exceeds your output tax (that you charge on your goods and services), then you can reclaim the difference from HMRC. So if your customers are predominantly VAT-registered, you may benefit from registering too.

Are There Disadvantages to Registering Voluntarily for VAT?

There are also some disadvantages to being VAT-registered.

If many of your clients are not VAT-registered, your goods will inevitably be more expensive for them, and they could look elsewhere for a cheaper option.

If you generate more VAT on your goods and services than you pay for, you could end up owing HMRC a large amount of your profits.

Being VAT-registered does involve more paperwork – as you will need to keep all VAT receipts and invoices, maintain accurate VAT records, and file a VAT return every three months.

For more information on VAT registration, or to register your business, see the HMRC website. (3)

 

  1. https://www.gov.uk/vat-registration/when-to-register
  2. https://www.gov.uk/vat-registration/calculate-turnover
  3. https://www.gov.uk/vat-registration/overview
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