Registering for VAT comes down to two things, compulsory or voluntary registration. Let’s look at compulsory registration first.
If your business turnover is over the VAT registration limit you must register for VAT. The VAT registration limit is set each year and for 2015/2016 it is £82,000. Where you’re close to the limit at the end of each month you should add up your sales for the previous twelve months and if they are in excess of the registration limit the HMRC must be notified within 30 days, and registration should take effect at the end of the month after the month when the business exceeded the limit.
It is also necessary to register if the business expects its turnover in a month to exceed the VAT registration limit.
When we use the word turnover we’re talking about the amount of taxable supplies. and taxable supplies are goods or services provided other than certain business income which is exempt or outside the scope of VAT.
Some items are zero rated for VAT but these still constitute taxable supplies.
The list of exempt supplies is long and sometimes complex, so more specific advice would be necessary in such circumstances.
It is possible to register for VAT even if you do not meet the criteria above, but why would you do this?
Businesses who are VAT registered can claim back the VAT that they incur on expenditure they make. So if all of your customers are VAT registered then they can claim back all of the VAT you charge them. This means they don’t mind whether you’re registered or not.
But once your business is registered then you can claim back the VAT you’ve paid on expenditure you’ve made.
So overall you would be better off. To work out by how much just add up the VAT you incur in a year.
It might be though that the time or cost of preparing the VAT returns would not be worth it for a few hundred pounds.
A way to get the benefit of VAT registration without to much admin might be to consider the flat rate scheme. With this scheme you charge your customers VAT as normal [currently 20%], but apply an agreed flat rate percentage when you prepare the VAT return. Each business type has a different rate. The rate for consultancy for example is 14%, so by voluntarily registering for VAT you could save 6% and not have a great deal of work to do each quarter for your VAT return.
Jason Seagrave | Partner | Seagrave French
0115 941 5193 | firstname.lastname@example.org