Should I VAT register?

You must register for VAT if your turnover for the previous 12 months exceeds the VAT threshold, currently £85,000 (2018-19). This is called compulsory registration and you’ll be fined heavily if you don’t comply. If you think you’ll go over the threshold in the next 30 days then register for VAT by contacting HMRC. Note that the 12 month period is just the previous 12 months and is not in anyway connected to your accounting period.
If you think you’re getting near this threshold then keep a running total of your turnover for the previous 12 months. Turnover in this context should include all sales within the scope of VAT, even zero-rated supplies! Exclude only those that are exempt or outside the scope of VAT.
This is easy to do in a spreadsheet, especially if you download my rolling turnover spreadsheet, or on paper using something like this:

12 Month Rolling Turnover
VAT threshold = £85,000 (2018-19)
Month Sales Cumulative
(12 months)
Jan 10,000 10,000
Feb 10,000 20,000
Aug 10,000 80,000
Sep 10,000 90,000 OVER!
Oct 10,000 100,000 OVER!
Jan 10,000 120,000 OVER!
Feb 10,000 120,000 OVER!

It is also possible to voluntarily register for VAT if you think this is advantageous to you eg if you want to claim back VAT on purchases and your customers are mainly VAT registered businesses. If they are not then adding VAT to your price will likely make you uncompetitive so think very carefully about going down the voluntary route. Furthermore the bureaucratic overhead alone will cost you time and therefore money.
Once VAT registered it is possible to claim the VAT back on expenditure made prior to registration. The time limits are three years for products, six months for services but there are other criteria at play so see HMRC’s site for more detail.
For more general info on VAT see Business Link: VAT
For current rates and thresholds see HMRC: VAT rates, thresholds, …
Small businesses and freelancers might find HMRC: Flat Rate Scheme for VAT useful as it offers a simpler approach for eligible businesses.

Print friendly Print friendly

Comments are currently closed.