Home > VAT > Should I Register My Business for VAT?

Should I Register My Business for VAT?

By: J.A.J Aaronson - Updated: 22 Mar 2012 | comments*Discuss
 
Vat Registration Vat Compulsory Vat

VAT registration is amongst the most important financial steps any small business can take. For some business owners it is a difficult decision, involving the weighing up of savings against the potential expense associated with charging VAT. For others, though, it is a necessity; there is a legal obligation to register for VAT once your turnover exceeds a certain amount. So what are the main factors to think about when considering registering for VAT? And when will you be forced to register?

Compulsory Registration

Broadly speaking, there are two types of VAT registration: voluntary and compulsory. If your turnover exceeds a certain threshold, or if you purchase a VAT Registered Business, you will be forced into compulsory registration. The threshold for compulsory VAT registrations is set at £77,000 from 1st April 2012. If your turnover exceeds this amount in any 12 months, you are obliged to register. You must register by the end of the month following the month during which your turnover exceeded the threshold. You risk incurring a financial penalty if you fail to register in this period.

Input and Output Tax

If your turnover does not yet exceed the threshold but you are thinking of registering anyway, you should understand the impact that VAT will have on your business. The key concept here is the distinction between input and output tax. Input tax is the VAT you pay when you buy items that attract the tax from VAT-registered suppliers. Output tax is the VAT you charge your customers.

At the end of each VAT period, if your output tax exceeds your input tax, you will have to pay HM Revenue & Customs (HMRC) the difference. If, on the other hand, your input tax exceeds your output tax, you will be due a refund.

Previous Form

You should look over your previous few months' trading records and consider whether your output tax would have exceeded your input tax during this period. If it would have, VAT registration may not be the best option for you at this point. As an alternative, you might consider increasing your prices in order to absorb some of the impact of the VAT that you pay your suppliers.

You should also consider the extra work associated with VAT accounting. You will have to Complete A VAT Return at the end of each and every VAT period, and you will also need to introduce VAT lines into your existing accounting practices. That said, if your annual turnover (excluding VAT) is less than £150,000, you may be able to apply for the Flat Rate Scheme. This allows small businesses to calculate their VAT liability as a proportion of their income, which is a far simpler method of accounting that can save you time.

VAT registration is a big step, and one that can have a significant impact on the financial health of your business. If your turnover has not yet exceeded the threshold for compulsory registration, you should think carefully before registering as de-registration can be a difficult and time-consuming process. If in doubt, make sure to consult an account before taking any action.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Jas
    Re: How Will My Second Job Be Taxed?
    Hi I have 2 jobs my first job I get paid 1150 second job paid 362 after tax it is BR tax but I'm sure on both my jobs I am…
    2 July 2020
  • Stig
    Re: What is My Tax Code?
    I recently got moved on to a k2600 tax code. My earnings have increased and I now get a fully fuelled car. My earnings prior to this were…
    19 June 2020
  • Legend
    Re: Should I be Paid Mileage Allowance?
    Hi my company are not paying me mileage I'm doing 84 miles a day.They provide me with a works van but can I still claim…
    3 June 2020
  • Caramel
    Re: How Will My Second Job Be Taxed?
    I currently have a full time job and wonder if I get a second job, is it worth it? If earning under 40k (doing both jobs and…
    30 May 2020
  • Dee
    Re: How Will My Second Job Be Taxed?
    I'm currently working full-time, as from next week I will be going part-time, and at the same time starting a new part-time…
    6 May 2020
  • Kel
    Re: How Will My Second Job Be Taxed?
    Hi I have been offered two jobs and want to work out if I accept what would I be taxed or what will I take home after tax and…
    20 April 2020
  • Ness
    Re: Should I be Paid Mileage Allowance?
    I have submitted my mileage allowance form to HMRC and have had notification that I am owed £**** for miles over 10,000.…
    17 April 2020
  • Amanda
    Re: What is My Tax Code?
    Hi I am getting a second job and I just worked it out with both wages I will still be under my personal allowance at 12500 so will I be taxed…
    4 February 2020
  • Pat
    Re: Payment of Pensions
    Who do I contact to change pension payments to weekly from monthly and is it easy to do regards Pat
    29 January 2020
  • Leelee
    Re: How Will My Second Job Be Taxed?
    I worked 48 hours a wk but hey paid for 44 hours a wk iv been offered a second job but only on bank would I have to pay tax…
    29 November 2019