Do I need to register for VAT?
This is one of the many questions we hear from clients who have just started in business.
The compulsory VAT registration threshold is currently £79,000. If you expect your annual turnover to exceed that threshold quickly, then you are probably best registering on day one. If not, and if you are a B2C business, then you should probably delay registering until you reach this threshold.
To some businesses just starting out, reaching this level of turnover seems like a long way off. It may however be in your interest to voluntarily register for VAT, as soon as possible. Two of the most common reasons are:
- If your customers are all registered for VAT. So there is no impact on charging VAT on your invoices to them and you can then reclaim the VAT charged on your expenses.
- If you are a business that has very few expenses that you can reclaim VAT on, then registering for VAT under the “Flat rate scheme” could create an income from VAT Registration.
So what is the “Flat Rate Scheme” for VAT? The scheme was originally introduced to ease the administrative burden for small businesses by simplifying the process of completing VAT returns. The scheme works by paying a fixed percentage (relevant to your trade) of your gross income to HMRC each VAT period. You are unable to reclaim VAT under the scheme except where you purchase capital equipment costing over £2,000.
The scheme is available to any business with annual taxable sales excluding VAT of £150,000 or below.