A question we get asked all the time by our brilliant community of freelancers, entrepreneurs and small businesses owners, is when do you need to register for VAT?
The straightforward answer is that you need to register for VAT in the UK if your business’s annual taxable sales are over the current VAT limit of £85000 – or if they’re going to hit that limit within the next 30 days. This is called compulsory registration.
But there are some cases in which you might want to consider registering for VAT before you hit that threshold. This is called voluntary registration.
But you might be wondering – why would you want to register to pay a tax you’re not legally required to pay?
Well, there are a few reasons that registering for VAT might be a good option for you and your business. This blog post will explain everything you need to know!
What is voluntary VAT registration?
Voluntary VAT registration in the UK is when a business registers for VAT even though they are below the VAT registration threshold. That means that their annual taxable sales are below the current VAT limit of £85000.
You can complete voluntary VAT registration online in the UK, and the process and requirements are exactly the same for compulsory VAT registration. And if you’re wondering how to become voluntary VAT registered, you can find step-by-step instructions for registering for VAT in our blog post.
Don’t forget that sometimes VAT registry is compulsory, so you can’t choose to opt out. When is VAT registry compulsory? When you hit the current VAT registration threshold, which in 2024 is £85000.
Now, let’s take a look at the VAT registration pros and cons.
What are the advantages of voluntary VAT registration?
There are tons of VAT registration benefits that you can claim for your business. In addition to not having to worry about registering when you hit the threshold, you can also boost your cashflow, simplify your bookkeeping and open your business up to trade outside the UK. Here’s how registering for VAT voluntarily could help your company to grow.
1. Boost your cashflow by reclaiming VAT
One of the main advantages of registering voluntarily for VAT is that it allows you to recover the VAT that you’ve paid on purchases from other businesses that are also VAT registered. For example, this might include office furniture for your business premises. Reclaiming VAT is a great way to make significant savings, especially if your business has a high expenditure.
You just need to make sure that you’re only reclaiming VAT on expenses that are directly related to your business. You’ll also need to keep accurate records including receipts to support your VAT reclaims.
2. Create a more professional image for your business
Registering your business for VAT is a great way to signal to your potential customers that your business is reliable and trustworthy. And if you ever decide to seek external investment for your company, investors are likely to look for VAT registration as a sign that your business is robust and credible. It’s a quick and easy way to boost your brand.
3. Give your business a competitive edge
Businesses that are registered for VAT can only reclaim the VAT that they have paid on purchases from other businesses that are also VAT registered. For that reason, a lot of companies who are registered for VAT prefer to trade exclusively with partners that are also VAT registered, as it offers a mutually beneficial arrangement. Registering for VAT voluntarily can be a great way to hold your own against companies who are large enough to have completed compulsory registration. It’ll help you gain more partners and grow your business.
4. Unlock global trading opportunities
Getting a VAT registration number is a great way to increase your chances of securing trade outside the UK. This is because having a VAT number can simplify transactions with other VAT-registered businesses in the EU and beyond, making the process a lot quicker and smoother, and therefore encouraging people to trade with you.
What are the disadvantages of voluntary VAT registration?
While registering for VAT voluntarily can help to boost your cashflow and grow your business, there are certainly disadvantages to voluntary VAT registration. Here’s what you need to consider before taking the plunge.
1. Compliance with more complex regulations
VAT registration brings additional administrative responsibilities. This includes maintaining detailed records, filing regular VAT returns, and ensuring compliance with HMRC regulations. This can be time-consuming and may require additional resources, so it might not be the best option for small businesses.
2. Changes to your pricing
Charging VAT on your products or services means your prices effectively increase by the VAT rate. This may impact cash flow, especially if your customers are not VAT registered and cannot reclaim the VAT you charge. It’s a good idea to consider your client base before deciding to register. If most of your customers are VAT registered and able to claim back the VAT you charge, then it could be a smart move. But if they’re not, there’s a chance they’ll be put off by the increase in your pricing.
What’s more, displaying VAT inclusive or exclusive prices and clearly communicating this to customers can be challenging. So take a moment to consider whether it’s worth the time and the effort.
3. Audits and VAT inspections
When you register for VAT, your business becomes subject to VAT inspections by HMRC, to check that you are correctly charging and remitting VAT. Auditing can be a slow and costly process, and may lead to penalties if any discrepancies are found in your records or returns.
4. Quarterly payments – even if your sales decline
Another disadvantage of voluntary registration for VAT is that you might end up owing money if your sales decline after you register. VAT registration rules state that businesses must pay quarterly installments of VAT based on their sales from the previous quarter. So if you had a good quarter followed by a not so great one, you might end up with a cash flow issue!
If you’ve read these disadvantages and you think that you’d be better off waiting to register for VAT, you can still give your business a professional reputation by registering for a virtual office. A virtual office provides businesses with a professional address without the need for a physical office space. It’s a great way to boost your brand without having to pay any of the expensive overheads on an actual office – and if you register at Impact Brixton for just 0.41p per day, you can also access our meeting rooms and coworking space, giving you the flexibility to work from home but meet a client face to face whenever you need.
Frequently Asked Questions (FAQs)
Can I voluntarily register for VAT?
Yes, you can voluntarily register for VAT. Voluntary VAT registration is when you register for VAT before hitting the VAT registration limits in the UK. In 2024, that limit is £85,000. To register voluntarily for VAT, you just need to complete the forms on the UK government website. Simply search ‘vat registration gov uk’, and you’ll find the page you need!
To get a heads up on what you’ll need to register, you can check out our blog post on how to register for VAT in the UK in 2024.
When can you voluntarily register for VAT?
You can register for VAT voluntarily before you start to make taxable supplies, distance sales or acquisitions. However, it’s really important to note that you can only register if you’re already in business. And it’s worth keeping in mind that if you register for VAT with no turnover, you might be asked to show HMRC that you plan to make taxable supplies.
You can find more information about registering for VAT before you start trading here. And definitely check if you’re a VAT registration exemption! Businesses which are considered “zero-rated” don’t have to pay VAT on the goods and services that they sell.
How does VAT registration work for self employed people?
The process of registering for VAT as a self-employed individual or sole trader is the same as for companies. It’s also crucial to note that compulsory registration still applies. So if you’re a sole trader with a turnover that exceeds £80,000 in any 12-month period, you’ll need to complete registration for a VAT number.
You can also choose to register for VAT voluntarily as a sole trader. You can register for VAT on the UK government website here.
Where can I find my VAT registration number?
If you’re unable to locate your VAT registration number, you’ll need to contact HMRC. You can also apply for a VAT registration certificate UK from HMRC, if you need proof that you’re fully VAT registered and ready to trade.
If you need a VAT registration number example to help identify yours, you can use this handy guide!
If your business is based in England, Scotland or Wales, your VAT number will contain 11 characters – the letters ‘GB’ followed by nine numbers. For example, GB 123 4567 89.
If your business is based in Northern Ireland, your VAT number will begin with the letters ‘XI’ instead of ‘GB’. For example, XI 123 4567 89.
Other countries have different VAT number formats. You can check these out and find more guidance on the HMRC website.
You can also use the VAT registration UK check service to perform a simple VAT number check. This allows you to find the name and address of the business the number is registered to, or to make sure a UK VAT registration number is valid. You can usually find a company’s VAT registration number on their invoice.
CONCLUSION
So, is it worth registering voluntarily for VAT? If you’re a sole trader or company that tends to trade with companies that are also VAT registered, then it could be a good idea to register voluntarily for VAT. But if you’re worried about meeting the quarterly payments, or you think that raising your prices might put off your client base, then it might be worth holding off a little longer. To find out more about registering for VAT in the UK, check out our comprehensive blog post!
