What are the pros and cons of being VAT registered?

It’s important to keep an eye on your turnover each month. If your turnover exceeds £85,000 or you know it's expected to in any rolling month then you will need to register for VAT. You may decide to register for VAT voluntarily as there can be benefits of doing so. There are exemptions of course.

Find out if you’re exempt from VAT here.

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Process

Once you register for VAT you will need to start charging VAT on all your invoices. You will need to display your VAT registration number on all your correspondence. You’ll need to make sure you put the VAT to one side ready to pay your VAT bill. On the upside anything which you pay VAT on you can claim the VAT back so technically your VAT bill will be less than the VAT you receive. This is why some businesses decide to voluntarily register for VAT because if they are paying more VAT than they are receiving then it’s beneficial to their cash flow.

If you voluntarily register for VAT you’re also entitled to claim back the VAT for the past 4 years providing you have proof of your purchases.

Downfall

If your business doesn’t pay a lot of VAT then it may not be worthwhile voluntarily registering for VAT. You need to weigh up your options before making the decision.

If you do have to register for VAT or choose to voluntarily just be aware that it will create more admin for you. If you’re already struggling with your bookkeeping, then it’s about to get a lot worse if you register for VAT. It may be worth outsourcing your bookkeeping in order to make sure you’re compliant and that you are using your time as productively as possible.

Of course no business is the same and it’s always best to seek advice from a professional before making the decision for your business.

If you’re concerned about hitting the VAT threshold or considering registering voluntarily then we’d love to have a chat.

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