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Should I register for VAT?

We are regularly asked by our clients about registering for VAT. If you are in business or are just starting out and wondering about whether or not to register for VAT, then this article should help.

Firstly, who must register for VAT?
The current threshold for registering for VAT is £81,000. What does this mean? Basically if your total VAT taxable sales value (referred to as turnover) is higher than £81,000 for a 12 month period then you must register. VAT taxable turnover is the total value of everything you sell that isn’t exempt from VAT. If you are not currently registered but are approaching the threshold it is important to continually keep track of your sales for the last 12 month period.

Can I register if my annual turnover is below the threshold?
If your turnover is below £81,000 you can still register voluntarily and sometimes this does make sense.

Why would I register voluntarily?
You may feel that your business has more credibility if it is VAT registered.
You may want to claim back VAT on purchases you make.
You will need to register at a later date and would prefer to put a system in place earlier.

When would I want to avoid registering for VAT?
If you sell goods or services to the general public, your prices to them will increase once you become VAT registered or if you maintain the same prices you will lose out by the amount of VAT.

What happens once I am VAT registered?
The current standard rate of VAT is 20%. Once you are VAT registered you will have to charge 20% VAT on all VATable sales and you will be able to claim back any VAT you are charged on business expenses. On a regular basis, usually quarterly, you will have to submit a VAT return online to HMRC and pay any VAT due. The amount of VAT due is what you have charged less what you can reclaim. If you are due money back HMRC will refund it to you.

Is it really that straightforward?
Unfortunately taxes are very rarely straightforward and every business case is different. There are also different VAT schemes available, each with their merits. You may want to register under the Flat Rate Scheme, the Cash Accounting Scheme or the Annual Scheme. Thankfully help is at hand, you can check out the HMRC website here or talk to your accountant. At Embarc we can help you make your final decision and if you need to register we can do that for you and submit your VAT returns when they are due.