We are often asked this question so thought it would useful to write a blog with the questions around VAT that you should consider before registering for VAT.

Do you need to charge VAT to your customers?

If you are VAT registered you will need to add 20% to your sale if it is a standard rated good or service. This may not be an issue if you customers are VAT registered as they will be able to reclaim this additional cost when they do their VAT return.  However, if you customer is the general public or is a non VAT registered business then your price will just be 20% more expensive to them and therefore may make you uncompetitive

Do you pay a lot of VAT on your purchases?

If you do then you will be able to reclaim these costs from the VATman when doing your VAT return.  If however most of your costs do not have VAT on them then you may not see any positive cash inflow impact of registering for VAT

What about the Flat Rate Scheme?

If your VATable turnover is less than £150,000 then the administration of VAT is made easier using the Flat Rate Scheme where you pay VAT based on a % of your total VAT inclusive sales in the VAT period.  The % is based on the business sector you are in.  There is a 1% reduction in the first year of operating the Flat Rate Scheme.   You don’t need to keep a track of the VAT on your purchases.  You can also reclaim VAT incurred on capital goods more than £2,000.

The public perception of your business.

Rightly or wrongly a VAT registered business is seen as more reliable, bigger, more stable than a non VAT registered business.  Some businesses will only deal with a company if it is VAT registered and generally businesses will be happier dealing with a VAT registered business.

Claiming back VAT before registered.

One benefit of registering for VAT is you can go back and reclaim VAT on transactions before you became registered for VAT.  If you still own the items at the time you become registered for VAT then you can reclaim the input VAT on your first VAT return.  Generally you can reclaim VAT on goods such as stock, plant and machinery and fixtures and fittings bought up to four years before you become registered, and services up to six months before.

Managing the VAT registration process

Ideally you want to have your VAT number when you are become registered for VAT.  Otherwise you may have to go back and re raise invoices between the date you become registered and the date you get your VAT number in order to show the VAT separately.  You can’t show the VAT separately until you have your VAT number.

You may not have a choice

Of course if your business grows and you supply VATable goods and/or services then you may not have a choice to register for VAT. Under current legislation you have to register for VAT when your VATable turnover either; exceeds £79,000 in the previous 12 months or you expect it to exceed £79,000 in the next 30 days alone.  Therefore it is sometimes beneficial to register for VAT shortly before you have the statutory obligation to register allowing you to register in a controlled manner at a time of your choosing.

VAT can be a complicated and time consuming task for many small businesses.  Speak to Stewart Accounting Services about your VAT obligations and the best way to manage them or even let us take the hassle out of your hands by preparing and submitting your VAT returns.