Currently you are not required to register for VAT until you hit the threshold of £85,000 turnover in a rolling 12 month period. However, there are times when it is a good idea to register voluntarily before you hit this threshold.
It looks more professional
Think of your target market – how would you like to be perceived by your target market? Being registered for VAT can make you look more professional, more of a ‘credible’ business. Especially if you are working with other businesses, in fact those who are also VAT registered would probably expect you to be as well!
Some bigger companies will stipulate in their contracts that you have to be registered for VAT to work with them.
It fits with your short- and long-term goals
If you’re looking in the future to have a turnover over the £85k mark, then it’s worth registering for VAT now. That way you will be setting your prices accordingly and starting off on the right foot from day 1. You won’t then have to either up your prices to add VAT, or worse – swallow the VAT within your current prices meaning you make less profit, down the line.
Of course, we always recommend reviewing your prices at least annually (preferably more often!), but you want to increase them due to other factors (profit margins, increased costs, inflation, valuing yourself more! etc), not just because you have to add VAT!
Boost your cashflow
If you’re buying a lot of goods or services that are vatable (ie from other businesses that charge VAT), then being registered for VAT yourself could give you a cashflow boost. You’ll be able to claim the VAT back that you can’t as non-registered, on your quarterly VAT return, meaning you’ll get the tax relief on those purchases earlier!
Additional work and accounts fees
It’s all well and good going and getting VAT registered before you have to – but just remember this will include extra work for you, and your accountant, which will also mean higher accounts fees. You’ll need to make sure you account for VAT properly for all transactions, as well as preparing and filing a quarterly VAT return, which now under MTD will need to be completed through software – but at PPF we’d always recommend software whether you’re registered for VAT or not – it just makes good sense!
As always, it’s a good idea to speak to your accountant re registering for VAT. Registering before you reach the threshold is recommended subject to your business’ circumstances and not a decision that should be rushed into. If you’d like to have a chat and see if being registered for VAT voluntarily would be of a benefit to you and your business then please do get in touch – visit our Work With Us page, complete the quick questionnaire and we’ll get a call booked in the diary.