Should I register?
- You must register for VAT with HMRC if your business’ VAT taxable turnover is more than £82,000.
- You can register voluntarily if it’s below £82,000 unless everything you sell is exempt.
- Your VAT taxable turnover is the total value of everything you sell that isn’t exempt from VAT.
What about my customers?
- If you’ve registered for VAT you must charge your customers VAT – your prices will increase by the amount of VAT that you have to charge. Today that is 20%.
- This is usually fine if you’re selling to VAT registered companies as they can reclaim the input VAT – but if you are selling to individuals then that 20 % increase is a real cost to them which they may not be prepared to pay. But if your product attracts VAT at 0% (i.e. Children’s clothes and some foods), there is no increase in your price and as a result, no negative implications on your sales.
- Manufacturers are likely to be paying VAT on the majority of purchases from material to manufacturing costs. They can then reclaim all of that input VAT. This can give you some flexibility in your pricing for retail customers.
- If you are a service, most of your costs are people related so it’s unlikely you will be paying much VAT – there may not be much benefit from registering for VAT.
Once you’re registered…
- Be mindful of your cash flow once register for VAT – you have become a tax collector for HMRC. This can impact your cash flow as you have to pay VAT over to HMRC at the end of the VAT Return period. If you have not collected payment on your sales invoices you could be paying HMRC before customers have settled their debts.
- If it is all too complicated you can register for the flat rate scheme if your VAT taxable turnover is less than £150,000. You calculate your VAT payments as a % of your total VAT inclusive turnover.
How will it effect my bottom line?
- VAT administration can be expensive, you may need to upgrade your website to cope with charging different prices.
- To reclaim input VAT you have to have VAT receipts or invoices; a credit card receipt isn’t enough.
- And don’t forget that you need your invoices to be compliant with VAT rules – for example you need to include your VAT registration number on all invoices (although the rules for retail are different).
- Your image matters. If you are working business to business you may find that companies are happier to work with a VAT registered business. It can make you look more stable, bigger, and more reliable. Some companies refuse to work with a non VAT registered business.
How far back can I reclaim VAT?
- You can generally reclaim VAT on goods you bought up to four years before you registered for VAT, and services up to six months before.
Have more questions? Speak to one of our business advisors today about further training or resources.
Written by Nwes Advisor Leonore Lord.