The need to register for VAT is often misunderstood or misinterpreted leaving business owners feeling unsure if they are actually required to become registered and how to go about the process if they are. Let’s take a look at all the information you will need to make an informed decision and see if registering for VAT is right for you and your business.
Do I need to register for VAT?
You will be required to register for VAT if over the course of the past 12 months your business’ total income meets or exceeds the VAT threshold (£85,000 for 2021/22 tax year). You should also be aware that you will need to register for VAT within 30 days of your business turnover/income exceeding the threshold, otherwise you may incur penalties from HMRC.
Can I register for VAT voluntarily?
Whilst you must register for VAT if your income is over the threshold, it could also benefit your business to voluntarily register for VAT. This can be a big decision which can have lasting implications for the financial health of the business, so it is vital that you think it through properly.
There are reasons why companies whose income is under the threshold choose to register for VAT voluntarily;
- Where your customers are all VAT registered, there will typically be no impact on the cost of your goods and services offered.
- aVAT can be reclaimed on most goods or services purchased from other businesses.
- In many instances, charging VAT on sales will create a cash flow benefit to the business as VAT collected is typically paid across to HMRC in arrears.
- Small businesses can give the appearance of being bigger and more established.
- Voluntary registration can be backdated by up to four years if sufficient evidence can be supplied to HMRC.
Alternatively, there are a few disadvantage to voluntarily registering for VAT;
- VAT could hamper the appeal of goods and services to customers who are not VAT registered, particularly if the final cost of the sale is deemed as overpriced.
- Registering for VAT will result in extra administration which will incur an additional cost.
How do I register for VAT?
Once you’ve decided on becoming VAT registered you can look at beginning the registration process. To register for VAT, you have to apply to HM Revenue & Customs (HMRC). If you choose to register yourself, you need to register for the VAT online service with HMRC. However, an accountant or an agent can do this for you. You should get a VAT registration certificate within 14 working days. However, it can occasionally take longer, so if you need or choose to register, it’s a good idea to complete the registration application as soon as possible.
Can I deregister for VAT?
If your businesses turnover/income will not exceed the VAT deregistration threshold of £83,000 within the next 12 months you are able to deregister your business.
There are scenarios where you’re obliged to deregister your business. For instance; if it stops making taxable supplies altogether, or if it becomes part of a VAT group. You may also have to deregister if the business is sold – although the new owner can choose to keep the registration number in some circumstances.
VAT registration is a big step for any business. Many business owners considering voluntary registration are put off by the prospect of increased paperwork, but VAT registration can also be a good financial decision. Make sure you seek professional advice should it be required before continuing with your registration.
*On 8 July 2020, the government announced that it would introduce a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions. The reduction in VAT rate from the standard rate of 20% will have effect from 15 July 2020 and has since been extended to 31 March 2021.
If you’re confused about whether you should become VAT registered feel free to contact us. Be sure to check out or other articles for guidance on your role as a company director and how to maximise your profits. If you’d like to discuss your ever changing and growing business feel free to contact us.