Should you be VAT registered?

October 27, 2021

To be VAT registered or not for some small business the choice is yours however most of you will be aware that registering for VAT becomes mandatory at certain business activity levels. If you are supplying services then you will need to register when you turnover reaches £37500. If you are supplying goods then the amount increases to £75,000 but what if you’re a small business or a business in a start up period, Is it worth it?

Let’s break it down. If you register for VAT then you can reclaim VAT on your expenses making it cheaper which is always good right? Not always as if you are registered for VAT then your company will have to charge your customers for VAT. This is fine if your customers are VAT registered as they can claim the VAT you charge them back. I think you’ve possible guessed the next bit. The bad thing is that if your customers aren’t VAT registered then they can’t claim it back which will make your services more expensive. VAT isn’t a dodge like most people think as the costs are passed onto the customer who is charged extra. You now have a choice to either potentially loose customers because your prices are too expensive or to reduce your costs and therefore have less profit. It’s a tough one!

My advice to you would be to look at your customer base. If your customers are mainly VAT registered and if you are incurring VAT on a number of business expenses then it generally makes sense to be VAT registered yourself. If your customers are mixed or are mainly none VAT registered then you will need to consider the pro’s and con’s. If you would like to sound it out, give me a call and I’ll give you some friendly advice over a cuppa.

Another thing which puts people off registering for VAT is the fact that there is so much admin. You have to fill in a VAT return form every two months. Don’t let this put you off if becoming VAT registered is financially better for your business as there’s always a friendly accountant willing to pick the paperwork up if you get bogged down.

Another advantage of being VAT registered and this may not seem too exciting, but your business can benefit from displaying your VAT registration number on all your documents, website, and stationery. This can add credibility to your business and give you a more trustworthy and professional image. Most people are aware of the VAT threshold and this means you then appear bigger to your potential customers than you actually are by displaying your VAT number. This may also help you when it comes to dealing with other businesses. Some businesses prefer it if you can raise a valid VAT invoice.