It is not compulsory to register for VAT until your annual turnover/sales reach £83,000.
However, any business can register for VAT at any time.
So why would anyone want to register for VAT and charge their customers an extra 20%?
Do you sell to the general public?
If so, registering for VAT is not for you!
The general public cannot reclaim the VAT you charge, so your prices will effectively increase by 20%.
You should only register for VAT when you exceed the £83,000 threshold.
Do you sell mainly to VAT Registered Businesses?
If all (or most) of your customers are VAT registered businesses, then it is ok to charge them an extra 20%. They will simply reclaim this VAT on their own VAT Returns, so they are not out of pocket.
It is probably a good idea for you to register for VAT and earn yourself some EXTRA CASH!!!
Option 1 – Reclaim the VAT on your expenses
By registering for VAT, you must pay HMRC the VAT charged to your customers, less the VAT that you incur on your expenses.
Therefore, VAT can now be reclaimed all business expenses, where VAT has been charged, including:
- Phone bills
- Etc etc.
Option 2 – Join the Flat Rate Scheme (FRS)
Many businesses can make further profits from the VAT man.
On the FRS, you pay VAT to HMRC as a set percentage of your ‘GROSS’ sales, depending upon your trade sector. For example, the FRS for a courier is 10%. You continue to charge VAT at 20% to your customers, whilst paying only 10% to HMRC.
|Yearly turnover (NET)||60,000|
|VAT Charged to Customers (20%)||12,000|
|Cash received into the bank||72,000|
|VAT payable to HMRC (72000 x 10%)||(7,200)|
|Income for the year||64,800|
As you can see from the above example, by taking the time to submit only four VAT returns each year, you have increased your annual income from £60,000 to £64,800, an additional £4,800. On the downside, you cannot reclaim VAT as in option 1, but if your purchases and expenses are low, this could be well worth doing.
Note: You also get a 1% discount on the FRS rate for the first year of your registration (an extra £720 in the above example).
TorrWaterfield can assist you with VAT registration, advise on the choice of scheme and help with completion and submission of your VAT Returns.
For further advice, or to discuss whether VAT Registration is for you, please give myself or your usual contact at TorrWaterfield a call on 0116 242 3400.
Stuart Caney, VAT Manager