A business must compulsorily register for VAT if taxable 12 month turnover exceeds £85,000. They can voluntarily register for VAT as soon as they start trading, providing they expect to make taxable supplies in the future.
Businesses that provide to other businesses may choose to register for VAT voluntarily before the registration threshold is met, in order to reclaim VAT charged on their own purchases (input VAT). The businesses they are selling to are likely to be VAT registered and so charging VAT will not impact their costs, as they can reclaim the VAT charged from HMRC.
Once registered, a business is not able to de-register unless taxable turnover falls below £83,000.
Businesses who sell to consumers may decide not to register early, as the amount they charge to their customers will increase once VAT is added making them more expensive or less profitable.
Businesses who do not trigger the ‘limited cost trader’ rules, those who have costs of less than either 2% of sales of goods, or total costs of less than £1,000 a year, may benefit from the flat rate scheme. Turnover must not exceed £150,000 in order to join.
Businesses who wait to register can backdate claims for VAT paid before registration. The purchases must relate to the business purpose, and a copy of the necessary VAT records must be retained. The time limits are:
- 4 years for goods you still have on hand at the date of VAT registration;
- 6 months for services
VAT registration enhances the image of the business by making it appear more credible. However, it does involve more admin and compliance duties with returns due to be filed under Making Tax Digital (MTD).
Please contact Whitings to discuss how this applies to your business and to achieve the most effective outcome for you.