VAT Registration

The VAT registration threshold in the UK currently stands at £85,000. If your business’ annual turnover exceeds this threshold, you must register for VAT. If you fail to do so within 30 days, you might face a fine.

It’s important to recognise that this figure is liable to change. The VAT threshold for 2016 was £83,000, and this has risen steadily from £77,000 in 2012 and £64,000 in 2007. You should check what the threshold is for each financial year so that you’re up to date.

You can use accounting software to keep an eye on your turnover and set up an alert to warn you if you’re approaching the VAT threshold.

You should also note that this figure is calculated on a rolling 12-month basis (the last 12 months from any given point) and is not based on turnover in a calendar year.

So, if your turnover exceeds the VAT threshold of £85,000, then you must register for VAT. However, you can also voluntarily choose to register your business.

Registering for VAT can ensure that you are ready to grow as a business – creating a positive impression about your intent – and allows you to reclaim VAT on purchases you make.

Clearly, if your business falls above the VAT threshold, then registering for VAT is vital to stay within the law. However, VAT isn’t just a matter for bigger businesses, and it’s definitely worth weighing up the pros and cons of this.

On the plus side, becoming VAT registered means that:

- You can reclaim any VAT that you are charged when you pay for goods and services. The VAT you pay, know as ‘input tax’, could end up being more than the VAT you collect from your customers, the ‘output tax’. If your input tax is more than the output tax, you can collect the difference back from HMRC, saving you some money.

- You’re ready for growth. By registering for VAT, you’ll avoid having to watch out for the threshold, and it sets the tone that your business is braced to expand. You can earn respect and recognition by registering too. If you’re not registered for VAT, other companies will know that your turnover is below a certain level, and they may choose to make assumptions about your business based on that.

Yet, on the downside, you might:

- End up paying more to HMRC. This is if your ‘output tax’ is more than your ‘input tax’ – the reverse of the scenario outlined above.

- Have to spend more time on paperwork. VAT is a tax collected by businesses on behalf of the Government, and you’ll need to file a return, adding to your potential workload. (This is where good accounting software can help)

- Have to pass on higher prices to customers, especially if you typically deal with the general public and not VAT registered businesses (who can claim back their VAT).

If your turnover is below the VAT threshold, it’s important to weigh up the pros and cons carefully for your situation and seek professional help if you are unsure.