Should a business register for VAT voluntarily?

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Should a business register for VAT voluntarily?

VAT can cause a lot of confusion for business owners and if you are not earning above the minimum threshold to automatically be VAT registered, it may not seem worthwhile to understand it in detail.

However, there are benefits that can come with being a VAT registered company.

Choosing to register voluntarily: the benefits

There are major benefits of being VAT registered, including the ability to reclaim VAT. When you begin to charge VAT on your products or services, you can then reclaim the VAT that is charged to you by other businesses (also known as input tax). If your input tax exceeds your output tax for a period, then you can claim back the difference from HMRC.

Customer perception and business profile

There is a perception that a VAT registered company is a more professional and successful one, so this could be beneficial to you as a start-up or small business, especially if you are looking to work with larger companies.

Avoiding accidental penalties

If you aren’t in the habit of keeping a close eye on your turnover as your business grows, you could creep over the VAT registration threshold without even realising and be fined for failing to register your business properly. If you do voluntarily register for VAT, you’ll never have to worry about passing the threshold without notifying HMRC in time.

Ability to make historical claims

As long as you have kept full VAT records and invoices, you can reclaim any VAT costs you incurred as you started your company (as long as those goods or services are now wholly used in the business).

It’s not a permanent decision!

In the same way, you can register at any time, you can cancel this registration too if you find voluntary VAT registration isn’t right for your business.

The challenges of registering for VAT

One of the key things that could change for your business is having to charge more for your products or services. While you can claim this back, there is a risk your customers may be hesitant to pay a higher price. Earlier, we mentioned that if your input tax exceeds your output tax, you can claim back the difference, but this also works the other way round! You may have to pay HMRC the difference if your output tax exceeds your input tax, so this is important to factor into your decision. This can also make forecasting your earnings for a period trickier too if you misjudge the input and output tax levels.

Additional paperwork

If you already struggle to keep up with your bookkeeping and paperwork, then you need to consider that becoming VAT registered will add to this workload. As with other tax paperwork, there can be fines and penalties if you are late filing these, so if you do proceed, make sure you allow ample time to meet these deadlines or consider freelance accounting support.

The next steps

Becoming VAT registered can be a great way to generate extra income, new customers and boost the profile of your business, but it can be complicated, so many business owners in Manchester seek our guidance on the best approach. To talk through your options, get in touch with us today on 0161 706 044 to see how the team at SQK Accountancy can help you move forward.

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