VAT should i register for VAT

“Should I register for VAT?”

Is a common question raised with me by new startups. The answer is not always clear-cut, explains Andy Tree, Associate Director for TechVentures.London and MD of Top Branch Partners:

 

should i register for VAT Andy Tree Associate Director techventures.london accountant

The VAT registration threshold is currently a turnover of £83,0000 in the immediate, previous 12 months (not in the previous, financial year or current financial year).

There is no requirement for a new business to register for VAT unless this threshold is passed. However, in some circumstances, it can actually be beneficial to do so!!

EXAMPLE 1:

John Smith sells management consultancy services to a variety of firms, all of which are VAT registered businesses. My registering for VAT, John charges an extra 20% of VAT on his invoices which make no difference to his clients as because they are all VAT registered, they can claim it back. John can then claim back VAT on his own purchases, or join the VAT flat rate scheme where he would actually be able to keep a % of the VAT charged to his clients instead!!

Is it worth registering for VAT voluntarily? YES

 

EXAMPLE 2:

John Smith sells goods to members of the public and small businesses that are not VAT registered. Registering for VAT would mean charging 20% VAT on invoices which would - in effect - mean a 20% increase in his prices!! This could be detrimental to his business model and may even result in him having to absorb the VAT himself in his pricing to remain competitive!

Is it worth registering for VAT voluntarily? NO

 

Contractors would usually fall into "Example 1", and should also benefit from being on the flat rate scheme, where a % of VAT charged can be kept - instead of claiming back VAT on purchases, which are likely to be minimal.

Where it becomes more complicated is where a business is selling to a variety of clients, some of which are VAT registered and some are not, as the overall benefit then needs carefully calculating and even then may be a best-estimate' based on future trading expectations.
 
The pros and cons of the VAT flat rate scheme also need to be examined when looking for the best solution for a business.The examples contained in this attachment are for illustrative purposes only and no specific advice has been given. Please ask us for specific advice on anything explained in this article.
 
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