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To VAT or not to VAT?


The current VAT threshold is £83,000.00: at this level of gross turnover you have to register. However, you may wish to register for VAT voluntarily.

What are the implications of registering for VAT voluntarily?

  • You can reclaim the VAT on your expenses;

  • You must charge VAT on your sales;

  • You must prepare and submit VAT returns, ensuring you have followed all the VAT rules

Pros vs Cons

  • The obvious upside of registering for VAT is that you can reclaim VAT on your expenses, thus making them cheaper. There is no downside on your sales as you will be charging VAT on the amount you are already charging.

  • If your customers are mainly non-VAT registered private individuals, they cannot reclaim the cost of the VAT which you have charged them on your sale price. This means that your product or service becomes 20% more expensive for them to use. Therefore, you must either ask them to pay more for your product or services, or alternatively you have to reduce your price so that the cost is no more expensive to your customers, but in doing this, it means you are reducing your own profits. This can be a tough decision to make. Obviously you would would rather not reduce your own profits, and indeed doing so may not even be financial viable in some cases.

  • If however your customer base are primarily VAT registered businesses, you do not have any of these concerns. Your customers won't be concerned that they are being charged VAT on your product or service as they will simply reclaim this amount from the Revenue, resulting in no additional cost to them.

Don't forget that additional work will be needed to prepare the VAT return in a timely fashion.

How Do I Decide?

The points to consider are:

  1. are your customers VAT registered?

  2. is the value of your expenses very high, including the VAT amount?

  3. Is the VAT reclaimed enough to warrant extra work, possibly done by a bookkeeper/accountant?

  4. Will being VAT registered add to the intrinsic value of your company in the eyes of your customers?

  5. Can you cope with the extra workload to complete a correct return, or do you have help at hand?