VAT registration for small businesses - everything you need to know
Posted on 28th February 2023
If you are a small business owner, you may be wondering whether you need to register for Value Added Tax (VAT).
VAT is a tax that is added to the price of goods and services sold in the UK, and it is collected by businesses on behalf of HM Revenue and Customs (HMRC).
In this blog, we will go over the basics of VAT registration for small businesses in the UK.
When do you need to register for VAT?
If your business has an annual turnover of £85,000 or more, you are required to register for VAT. HMRC give you 30 days from the end of the month you go over the threshold to register.
However, the 'rolling' 12-month VAT period means that you must complete a whole year of business.
After your first year in business, you will take your latest month and add it to the total turnover figure at the end of each month to check whether you have passed the current threshold.
However, even if your turnover is below this threshold, you can still choose to register for VAT voluntarily.
Once registered you must charge VAT on the goods and services you sell, and you can claim back VAT on the goods and services you purchase for your business.
What are the benefits of registering for VAT?
There are several benefits to registering for VAT, including:
Claiming back VAT on purchases - When you are registered for VAT, you can claim back VAT on the goods and services you purchase for your business.
This can help you to reduce your costs and increase your profits.
Increased credibility - Being registered for VAT can make your business look more professional and established, which can help to build trust with your customers and suppliers.
Competitive advantage - If your competitors are not registered for VAT, you may be able to offer lower prices or better deals to your customers, since you can claim back the VAT on your business expenses.
What are the drawbacks of registering for VAT?
There are also some drawbacks to registering for VAT, including:
Increased paperwork - When you are registered for VAT, you will need to keep detailed records of all your VAT transactions, and you will need to file VAT returns with HMRC on a regular basis.
Cash flow issues - Since you will need to charge VAT on your sales, you may find that your customers are reluctant to pay the higher prices, which can affect your cash flow.
How do you register for VAT?
You can register for VAT online through the HMRC website.
You will need to provide some basic information about your business, including your name, address, and VAT number.
You will also need to provide details about your business activities, including the types of goods and services you sell, and your expected turnover.
Once you have registered for VAT, you will receive a VAT registration certificate from HMRC, which you will need to display in your business premises.
You will also need to start charging VAT on your sales and keeping detailed records of your VAT transactions.
If you are unsure whether to register for VAT, speak to our expert accountants to help you weigh up the pros and cons for your specific business.
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