HMRC have rules on when to register for VAT, based on the taxable turnover of your business over a 12 month period. The taxable turnover of a business is the total value made from selling goods that are not exempt from VAT. Examples of exempt supplies could be insurances or financial products.
You must register for VAT once your VAT taxable turnover is more than £82,000. While this is the point at which you must register, you can register earlier if you think it would be beneficial for your business.
Why register for VAT before you have to?
Many businesses choose to register early for VAT as it helps them become more marketable to a wider audience.
When you are VAT registered, you need to put your VAT registration number on documents such as invoices. This can give potential customers the impression that you are a larger, more established organisation. This can encourage trust, and may make a broader range of potential customers more willing to deal with you.
As well as increasing confidence in your business, dealing with VAT registered suppliers has a financial advantage for many customers. VAT registered organisations may prefer to deal with VAT registered suppliers, as it means that they can claim back the VAT from HMRC.
If your target audience is large organisations, such as mobile phone companies or large engineering firms, you might considered taking advantage of the the opportunity to register early.
Free advice: how to write a business budget
Enter your details to watch the webinar with qualified accounting tutor Patricia Barlow
Why wait to register for VAT?
While those dealing with large organisations can reap the benefits of early registration, it’s better for others to wait.
If you deal with customers who are not VAT registered, they will not be able to claim back the VAT when dealing with a VAT registered company. This means you might lose out on potential customers to those who can offer VAT free prices.
Waiting until you reach the threshold is ideal if your customers are the general public, as the general public cannot register for VAT. Some examples of businesses who would not want to register for VAT before they have to are hairdressers, cafes or newsagents.
If you run a small business, it’s essential to be aware of how the latest financial regulations affect you. Those who do their own bookkeeping often benefit from gaining the AAT Bookkeeping qualification, a short course that can be studied from home online. This covers how to calculate VAT, as well as giving you the skills you need to do your own bookkeeping with confidence.