Many people ask me if it’s worth becoming VAT Registered if they haven’t reached the government-set threshold. As with all things there are positives and negatives with being VAT Registered and today I’ll briefly explain both sides and then let you decide if being VAT registered is the right choice for you.
Please note, if your turnover is equal to or more than the government set VAT threshold for this tax year then you legally must become registered without question. This blog is written for those of you who are below the VAT threshold and want to know if it’s worth becoming registered anyway. So here we go!
Backdate 4 years
As soon as you become VAT Registered you can backdate 4 years in your accounts and claim any VAT that you couldn’t before.
Claim VAT back
Any VAT you spend on purchases for you business can be claimed back against your income – so if your work involves a lot of buying and selling this can be great for you.
Perceived as a bigger company
Many big businesses prefer working with VAT Registered companies since you are seen to be owning a business which turns over at least £82,000.
Look more professional
Of course having your VAT Registration number etc makes you look very professional and people know you mean business when handing them an invoice with your VAT!
Lots of paperwork
If you’ve gone from just being a one-man-band and are used to just filling in your self-assesment tax return at the end of each year…then becoming VAT registered will be a big jump for you. There is a lot more paperwork to worry about which automatically means either more time spent sorting the paperwork, or more money being spent on accountants.
Quarterly/Monthly VAT returns
You have to now legally file a VAT Return every month or every quarter to the HMRC. Again more time and/or money for your accounts.
May have already spent your VAT
Many people don’t know that once you go VAT registered you can suddenly start to owe more in your VAT returns than you thought and can be caught out slightly when realising you have already spent the VAT money you need to pay the HMRC.
And they, my friends, are the key factors to consider when wondering if it’s worth becoming VAT Registered.
As you can see there’s arguments on both sides however my main advice would be: if you are a sole-trader just earning an average living wage through your self-employment then don’t worry about becoming VAT Registered, it’s quite complicated and the accounting side isn’t for the feint hearted!
However if your turnover is getting close to the £80,000 then definitely start to look at becoming VAT registered since it is of more benefit for someone like yourself.
I hope that helps and if you want anymore information just contact me at firstname.lastname@example.org
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