One of the most commonly confusing and daunting topics among business owners is VAT registration. In our many years of practice as bookkeepers, we have dealt with a large clientele and the question that very often arises is whether registering for VAT is the right decision for their company.
Even though for some companies VAT registration is compulsory by the law, for others it’s a voluntary decision, which means that in reality it’s a matter of good timing and getting smart legal and tax advice for your company. Having that said, in order to come to the right conclusion it is important not only to know your company’s needs and profits, but it is also crucial to understand the impact of this decisionon your business.
If your business’ VAT taxable annual turnover is more than £85,000, then you must register for VAT with HM Revenue and Customs (HMRC). And once you are registered, they will send you a VAT registration certificate, which will confirm your VAT number, the dates when you will have to submit your first VAT return and payment, along with your ‘effective date of registration’, which is the date you went over the threshold, or the date you asked to register if it was voluntary.
This is a very straightforward procedure for your company if it meets the VAT registration threshold of the £85.000, but the challenge begins if you are a small business owner or a start-up company and you are trying to figure it out what is the best course of action for you.
Every company is different and every company owner needs to be advised accordingly. It’s a bookkeeper’s duty to be able to advise his clients for the best of their interest. Registering for VAT should be considered very thoroughly as it can have permanent implications for the financial health of your company.
One of the main reasons why you should consider registering for VAT voluntarily is reclaiming VAT that you have been charged by other companies. As a VAT registered company you are legit to claim back VAT charges, as long as your input tax doesn’t exceed your output tax. Moreover, being a VAT registered firm can be beneficial for improving your business profile. Potential collaborators and clients will consider you as a large and well established company.
In spite of the benefits, one should also consider the downsides of being a VAT registered business owner, especially for small companies or start-ups. You might end up with higher costs and there will be an increase of paperwork. Your company needs to follow specific procedures and be on time on your payments, as penalties do apply.
There is no doubt that registering your company is a substantial change for your business. And there are plenty of questions that we are more than happy to answer and help you with. As a bookkeeping company we are here to advise you which are the best solutions for your own business and assist you throughout the whole process, while ensuring that a VAT registration is the right financial decision for you.