Voluntary VAT Registration

3 Reasons To Consider Voluntary VAT Registration

While all firms are required to register for VAT once they hit the turnover threshold (£88,000 for 2017/18), voluntary VAT registration should be considered on a case by case basis.

This is because VAT registration can have some financial and non-financial benefits that make it worthwhile from day one. We have highlighted three benefits every business should consider.

WARNING: Voluntarily registering for VAT when you don’t need to by law adds a whole new level of administration and responsibility to your business. The cost of that extra administration and responsibility can outweigh any tax advantage. The best advice is to become registered for VAT only when you are required to by law.

You Are Going To Hit The VAT Threshold Quickly

Depending on the nature of your business, you may have to think about VAT straight away, or it could be something that takes years to affect your company.

The VAT registration threshold increases in line with inflation, with the current rate for 2017-2018 in the UK set at £85,000. If your business is likely to hit this quickly, then it is advisable to consider voluntary VAT registration.

Registration allows your business, to operate with consistent procedures and pricing from the beginning. Selling your product as a retailer could see your prices rise 20% once registration is mandatory.

If you are going to have to register in the future, it makes sense to do it from day one.

Reduction In Costs

Despite increasing the cost of goods to your customers, voluntary VAT registration can help businesses reduce your companies costs. The way this works and how much can be reclaimed.  Is dependent on the individual circumstances of the business and the VAT scheme you enrol in.

Typically VAT registration allows businesses to claim back VAT on any purchases. Those on the flat rate scheme benefit by reducing the amount of VAT they pay to the HMRC compared to how much they charge their customers.

Voluntary VAT Registration Reputational Benefits

Registering for VAT can have a reputational impact on a business particularly those selling to other businesses. Being VAT registered can be interpreted by potential customers to the size and stature of the company due to the turnover threshold. Registration like forming a limited company can also increase the perception that the company is professional and well run.

The Downside of Voluntary VAT Registration

Although there are a number of VAT schemes that can help reduce the burden of producing VAT returns, that burden is still there, and it relies on an accurate and up to date bookkeeping process. Most businesses operate their VAT on a quarterly basis.

Every 3 months they prepare their accounts, fill in the boxes on the VAT return and submit it to HMRC within a month and a few days at the end of each quarter. If you can put up with the extra admin required and can justify that with increased profits (due to a saving by reclaiming your purchase VAT) or due to increased prestige in your market, then it may be worth going ahead and opting for voluntary registration.

More details from HMRC here: https://www.gov.uk/vat-registration/how-to-register

Our blogs do not constitute accounting or business advice, if you are confused about voluntary VAT registration please contact HMRC.

Quentin Pain

Quentin Pain is the founder of ProofMEDIA Ltd, a company specialising in helping businesses become number 1 in their industry. He is a past winner of the IAB Small Business Mentor of the Year Award and founder of multi-million pound British software company Accountz. He is the author of a number of books including a Dummies series title, and has been featured in The Sunday Times, The Independent, The Daily Express, The Financial Times, MoneyWeek, Metro, and BBC.