Do You Need to Register For VAT?

By June 9, 2021 June 16th, 2021 Insights

As a business owner, you might be wondering whether you need to register for VAT. While you can register for VAT voluntarily you will also need to register should you earn over the VAT threshold. Therefore, it can help to understand whether you should register for VAT or not.

Have Your Sales Exceeded the VAT Threshold?

The VAT threshold is £85,000, so if your total sales have gone beyond this, then you will need to become VAT registered. Along with this, if your turnover is likely to cross the threshold over the next 30 days then you will still need to register for VAT.

Identifying When You Have Crossed the VAT Threshold

VAT is different to other kinds of tax such as personal tax or corporation tax. Therefore, it does not end at the same time as the financial year.  In contrast, it works on a 12-month rolling basis and depends on whether you have surpassed the £85k threshold between January and December.

If you believe that your turnover is getting close to the limit then you should monitor it once the end of the month comes around. You can do this by totalling all of your invoices for the previous 12 months and then creating a report. If you are self-employed and have a number of businesses then you will need to combine the turnovers of each business. However, if you have a number of Limited Companies then you can treat them all individually when it comes to VAT.

Sole Trader or a Limited Company?

Anyone can choose to register for VAT as it’s possible to do this voluntarily. Therefore, you do not need to have a turnover that goes beyond the threshold to register. You might choose to do this if you work with businesses that are VAT registered. However, if your customers are not VAT registered then they won’t be able to claim the VAT that you charge. So, choosing not to go VAT registered could mean that your prices are lower than your competitors who are VAT registered.

With this in mind, if you are self-employed then you as an individual will be registered for VAT and not the business itself.

Do You Have Plans to Grow Your Business Rapidly?

Another consideration you might want to make is whether you have plans to grow your business rapidly. If you think that you will go beyond the threshold in your first year, then you might choose to register for VAT from the beginning.

This will ensure that all customers become familiar with paying VAT on sales while you won’t need to make any price adjustments to your prices. For any set up costs that include VAT, you can reclaim it back while you can also implement all the right systems to handle VAT from the very start.

VAT can be very complex but you have to make sure that you pay VAT and charge VAT once you cross the threshold. Therefore, it takes the right management to ensure you do everything right.

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